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If you really consider the allies declared war on Germany the first time they attacked a country outright. The way Hungary attacked Austria fine, but the Allies would have guaranteed any country around Hungary after the war
Podcat already made clear that the way daniel plays the ai doesnt have much of a chance to react at the moment. Once World Tension hits 25% the allies should (if they got the political power) guarantee countries a aggressive state is justifying a war over. As it stands right now the allies will actually go to war with hungary, not with germany in WWW, since germany isnt the aggressor.
I'm not sure if Daniel mentioned it and I couldnt watch stream today but the AI currently has some issues with stopping that particular way Daniel declares wars and expands. We will be reworking that before release so AI will step up and place guarantees to stop early expansions in a similar way it does to germany doing this. It has to do with generated tension by that particular nation and the fact that he can declare war on anyone with zero time delay, leaving no real time for AI to step in. The way tension works the allies can not simply declare war until its higher, they have to guarantee nations first and this leaves no room for that.
Ok, but shouldn't Austria start off guaranteed by Italy in 1936? Maybe an event concerning Germany+Italy would remove the guarantee. Honestly, Hungary attacking anyone by themselves ought to be suicide, though I guess the Little Entente can't be represented accurately in the game.