Oh well, another thread where the German anti-Italian propaganda is swallowed hook, line and sinker.
Germany lost the war because of its own inadequacies and poor choices. Had nothing to do with its Allies. If anything, the contribution of Germany's allies, which includes Romania, Hungary et al, and not just Italy, provided a net benefit to the German war performance.
Just limiting ourselves to the impact of a neutral Italy and trying to avoid ground already covered by others.
1. About a million tons of Allied shipping would not have been sunk by Italian subs. Always very fashionable to belittle the performance of the Italian submarines. Pity the facts don't support the propaganda. Italian sub designs were not as efficient as some, but not all German designs, in the Battle of the Atlantic, but they did make a significant contribution. No Italian contribution, there were no spare German subs to replace them. Plus the entire Allied ASW effort could be even more concentrated on hunting the German U-boats.
2. No guarantee that Italian torpedo models, which were far superior to the German models, would have been given to the Germans.
3. No Italian naval bases, absolutely no meaningful U-boat presence in the Mediterranen. Sheer fantasy that U-boats, particularly the coastal classes such as the Type VII which formed the bulk of the U-boat fleet, would regularly run the very dangerous gauntlet of Gibraltar to get in and then quickly get out to refuel and rearm. So forget any idea of meaningful Allied ship losses in the Mediterranean.
4. Most of the valuable raw materials brought back from the Far East for the benefit of German industry were carried by the specially designed Italian cargo subs.
5. It is an open question whether Manstein could have captured Sevastapol in mid 1942 without the naval blockade provided by the Italian navy. Just another instance where the Germans grab all the credit and dismiss the contribution from the Allies. A delay here would have had ramifications on the subsequent AG South 1942 summer campaign. It certainly would have reduced to practically zero the chances of capturing the Caucasion oil fields which needed the Alpini. Their non use there is indicative of the muddled German planning which led to Operation Uranus.
6. Ah the Balkan Campaign of 1941. So easy to blame the Italians for forcing the Germans into it and thereby delaying Barbarosa. Let's look at the German self inflicted wounds here.
(a) the German invasion of Yugoslavia had absolutely nothing to do with Italy's war with Greece. Germany invaded solely because of the pro-Allied coup which occurred in Yugoslavia. The threat to his oil supplies from Romania (and to a far lesser degree Hungary too) which came up the Danube, was far too great for the Germans to ignore. Hence the decision to invade.
(b) having decided to invade Yugoslavia the German campaign benefited great from the contribution provided by its allies, foremost among them being the Italian contribution. In 1914 and early 1915 the Serbs were able to keep at bay the Austro-Hungarians because they were fighting on a single front. This was not the case in April 1941. Not only did they have to safeguard the Hungarian and Bulgarian frontiers (hint, you can check up yourselves from where came the German schwerpunkt) but there were two Italian fronts to also safeguard (Istria and Albania). Common to hear how rapidly the German units advanced. When was the last time anyone heard about the equally rapid advance of the Italian units out of Istria and Albania. Simply put the Yugoslavs were overwhelmed everywhere
(c) next up is Greece. Again the superficial line peddled is that the Germans got dragged in because Italy had stalled. The truth is that Greece again threatened German oil imports from Romania. Not this time by interdicting the Danube but by potentially hosting Allied bombers or replicating the WWI Salonika campaign. This threat had existed before Oct 1940 but with the pending Barbarosa, which absolutely needed to siphon off allied forces away from the area, it could no longer be overlooked
(d) having decided to invade Greece, the quick German victory greatly benefitted from the Italian contribution. Firstly, almost the entire Greek army was deployed against the Italians in the west. Secondly the Greek forces had run out of reserves of men and materiel. In fact it is quite conceivable that the reinforced Italian forces were in a position to advance in the summer against the Greeks unless the latter received massive support from Britain. One does not have to be a military genius to quickly capture terrain if there is very little opposing one. How well would the German Panzers have performed in the rugged Greek mountains up north if confronted by a fresh and concentrated Greek army. Thirdly Italian forces and bases materially assisted the capture of Crete. Even with their participation it was a very close run thing for the Germans. Without the Italian contribution, it is very hard to see how the Germans could have captured Crete.
7. Occupation troops. The Balkans were almost entirely garrisoned by Italian troops. The many anti-Tito operations were heavily dependent on Italian participation. There were no spare German forces and yet those areas had to be garrioned. The net result would have been fewer Germans available for the OstFront, which front was always critically short of troops. Let's not forget also the Italian forces employed in garrisoning ex-Vichy territory.
8. Barbarosa was always predicated on significant contributions from allies. Whilst not as large as the Rominian component, the Italian one was still large. It irks me how quickly the blame is sheeted home to the German allies for the success of Operation Uranus. No mention of the Italian victories prior to then. Plenty of examples of the same results from German units when confronted by first class soviet units, particularly in winter operations. Luftwaffe divisions were better equipped and they reguarly folded. Simple fact is that the Italians (and Romanians/Hungarians) were indispensable for manning the line from day 1 of Barbarosa. And whose idea was it to invade the USSR?
9. A neutral Italy would have developed an important aircraft export market to ... Britain. As it was Caproni already had a 1000 plane British order which was scuttled when Italy went to war. With guaranteed access to raw material, and the expected large profits to be earned, one could see that market developing in the future, such as including the excellent Re2005 fighter produced by a Caproni subsidiary. One can also envisage a neutral Italy providing advanced aircraft to the Dutch East Indies but that is another topic.
10. A neutral Italy would have been able to avoid financially supporting the German war effort. Yes, just like the conquered European territories, Germany's allies were forced into paying exorbitant rates for German imports. A neutral Italy, having a large merchant marine, would have had access to the Americas, Africa and Asia for its imports and in turn would have been in a better position to compete with Germany for export markets in europe. German economic exploitation of european countries and how that materially assisted the German war effort is one of those many areas which people overlook.
In 1996, Kenneth Macksey published From Triumph to Disaster which was subsequently reissued with the more accurate title, Why the Germans Lose at War: The Myth of German Military Superiority. Rather than blaming their allies, in this instance Italy, I suggest many would greatly benefit from reading this book.