France collapsing or not, keeping Italy neutral will be Paris and London priority in 1940 as Rome was still considered one of the big guys (the fragility of the armed forces were not know at the time) and a Dow from her will have open a lot more of theater, buying time for the Germans to rest and reequip...and will have give some overture to the Japanese, will have the Entente win? Sure, it will be longer and costlyer in both blood and treasure? You can bet it your house.
Going back to the current situation, Italy for now had more influence in the Balkans, sorry but between Poland and Czechslovackia, the Entente assurance have a lot less appeal than in 1938 and the italians at least at put booths in place; plus with the entente and Germany occupied it plan for economic penetration in Romania and neigbouring countries will have continued (and Hungary was in the last 15 years one of the big italian military and economic patner) and some more in Spain due to being the only fascist power remained and supporter of Franco.
Taking in consideration that even with Berlin out, the soviet and japanese menace remain at the horizon, so keeping good relations with Benny due to the strategic importantance of Italy remain very important for the Entente, this mean that they will give up everything to Mussolini? No, absolutely but it also mean that italian interest will be needed to be taken in consideration and something given up
I doubt Italy will be able to get very much by this stage - the Entente leadership will be well aware of the relative power of Italy as compared to Germany, and having just crushed Germany there isn't very much that the Italians can do. That doesn't mean they'll be nasty about it - as we've already seen the Entente are happy to sell stuff to the Italians - but any attempt by Mussolini to say "give me stuff" will be met with muffled laughter from Paris and London.
Stories change with debate, including this one.
The points I have made - which don't seem to upset pdf27 - are exactly the ones which will be being made and with far more vehemence in TTL by people from the very top downwards.
I read all of the points people make in this thread, and if I find them persuasive then the story is amended accordingly (including changing past updates if needed). However, I'm quite happy to ignore people who I don't find persuasive and really don't care what they say so long as it isn't grossly and personally offensive - it's all water of a duck's back to me.
For the Entente *at this point*, the future war planners at their War Colleges split the other world powers into two parts.
Not likely to go to war with over the next decade: Italy, US
Entirely conceivable to go to war with over the next decade: SU, JP.
I'd divide them up a bit differently:
Allies: France, the UK, their various imperial possessions and dominions, the current European countries fighting alongside them.
Friendly Neutral: Sweden/Finland Union, marginally the USA.
Neutral whose interests currently coincide with ours: Italy, Spain, Portugal, most of South America, etc.
Neutral but dodgy as a nine Franc note: USSR. Some of the Eastern European countries are teetering on the edge of this list (Hungary, etc.)
Probable enemy currently being kept honest because we've got the biggest fleet in the area: Japan
Country I'm most likely to have to fight next after this war is over: Germany, Austria
The veterans of the Great War will be remembering another occasion when the Germans have been driven to edge of defeat
and ask for an armistice saying
"Look we have got rid of the leaders responsible for the war, we the innocent people are suffering. Have mercy, we are a new Germany"
and knowing how that turned out ... will realise just how much mercy should be given to this Germany.
There is probably going to be quite a lot of mercy, but one thing that will be completely absent is trust. It will be a long time before a German in uniform is allowed anything more dangerous than a water pistol.