@witt Hi Witt,
We started play testing this rule 3 years ago - and it has seen many changes, during approximately 80-90 games.
This is the final outcome. And the play balance seems to be somewhat secured.
Remember, this rule is part of the entire Axis & Allies Global 1940 2E, House Rules Expansion so when this rule is held up against the advantages that The Allies are granted - it all makes better sense.
When this rule comes into play (Late 1943 - round 8 - at the earliest), The Allies (especially USA) are now producing troops, sea units and air units on a massive scale.
For The Axis to be able to implement the Takeover no Axis units are on the African continent - and the Italian Navy (if any) is confined to The Mediterranian Ocean. In other words - Africa is lost - and it would take a massive effort for Germany to conquer even North Africa at this time.
Our game experience with this rule (supplemented by all rules in the Axis & Allies Global 1940 2E, House Rules Expansion) shows, that when Germany takes over Italy, The Allies most often have brought the German advance into Russia close to a stand still.
The German Take Over og Italy gives the German troops a better chance to consolidate their gains in Western Europe - at least for some time - and thereby being able to stabilize The Eastern Front.
I hope this gives some insight - at least for now. By the end of this month, I expect to be able to release the entire Axis & Allies Global 1940 2E, House Rules Expansion version 1. We are working on the last editing.
When released, I hope you and your play group will be inspired, and play with these rules to gain experience - and fun as well.
I really appreciate questions and feedback.