I don't think anybody's militia stats should change or be penalized, since they are already nearly worthless and cannot improve. In the above screenshot I see the Italian militia has a grey bullet.
Agreed. That was intended to illustrate the graphic, not specifics.
At the moment, what I am thinking is as follows. Let me know what you think. For nations with reduced capability:
When I say "suffer -1", I mean on all relevent combat tech attributes (e.g. for infantry it is AA, land attack, evasion). But note that the penalty will not make the levels lower than the Neutral player capabilities for a unit, so there is a floor on the levels.
- units that suffer -2: armor
- units that suffer -1: carrier air, fighter, TAC, HB, airborne, artillery, flak, sub
- units with no national capability penalty: militia, heavy fleet, light fleet, carrier fleet, transport fleet
Hence, for example, both German and Italian subs would start at torp=2, evasion=2. This is the Neutral level, so Italy is not penalized. If Germany techs up torp=3, then German subs will get better while Italians stagnate. If Germany techs up torp=4 then Italian subs will reach torp=3.
For subs, I could alternatively raise the Neutral level of torp to 3, then Italians could follow the German's to 3 then get stuck there until the Germans reach 5 and put Italy up to 4. Or something like that.
Thinking through the implications of it all, the reduction in Italian sub capability would be one of the most significant changes to the game. I think it is necessary in order to make this interesting (otherwise you'd still want to focus on fully capable subs from Italy instead of other Italian units) but it may jigger the balance a bit.