Unless already at war, any country - whether it is a player nation or minor country - will be affected by ‘surprise attack’ rules. ‘Surprise attack’ rules state that a country so affected cannot move any units in movement phase, and all units defend at 1. Bonuses for terrain still apply and units in a fortress or supply depot defend normally.
Normally, the Allies would counter-move after the Axis are finished doing their moves, but France, UK and Poland (the only active Allies at the start) are considered to be first time attacked by Germany and therefore suffer ‘surprise attack’. (I know that France and UK declared war on Germany, not the other way around, but their inaction in the first few months is replicated by this rule)
While neutral, USSR cannot conduct a turn except to occupy its half of Poland and associated territories. It must have enough units to occupy these zones and prevent a Nazi take over of any of these zones.
All attacks are successful. The attack on Krakow is successful and opens up the way to Warsaw.
Germany then uses all blitzkrieg capable units that have not already been used to move into Warsaw. Even if a tank was attacked in Movement phase, as long as it didn’t MOVE, then it can still be used in Blitzkrieg phase.
Only the side that has initiative can conduct Blitzkrieg (in this case it is the Axis). Units defending against blitzkrieg also suffer ‘surprise attack’ as stated above.
