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Austria in the 1936 scenario is a micropower that faces imminent annexation by Germany. Austria is the heartland of the Catholic German people and heir to recently destroyed Habsburg empire in its last incarnation of Austria-Hungary. The Habsburgs fought fiercely for a Catholic Germany with its capital of Vienna, but now Germany is Protestant-dominated with a Catholic south. The Catholic German people remember the days of the repressive Kulturkampf ("Culture Battle") against Catholics by Otto von Bismarck in Germany. In these circumstances, Austria must ask itself: is Hitler's pan-German unification inevitable and not worth preventing or is it worth struggling to be free from Protestant German control? The first option means the end of Austria as an independent country. The second option is a risky one that requires excellent strategy and best luck and fortunes to achieve.
Historically, Austria sought close relations with Italy in order to support its independence from Germany. This is also an excellent strategic move. Italy may want Germany as an ally, but it wants Germany as a minor or at most equal power to Italy, but no more. This is where an independent Austria and Italy can mutually help each other In actual history in 1934, Italy almost waged war on Germany when Hitler tried to annex Austria, sending Italian troops with Austria's permission to the border with Germany, forcing Germany to delay its project. To avoid annexation by Germany, Austria as a micropower must open itself to become a protectorate of Italy that retains an independent foreign policy if possible. To do this, Austria should give Italy the right to station Italian military forces in Austria, give Italy trade privileges, and participate in Italy's military campaigns, especially a Balkan war. This strategy does not guarantee that Austria will survive the push by Germany to annex it, but with Austria as a close ally of Italy, it has more room to strategically maneuver.
"Germany demands annexation"
- Accept Annexation: Become part of Germany, disappear.
- Join Axis: Gains 10 dissent and joins Axis. Improve relation with Italy by 15,and Germany by 100. Also change ministers to which support national socialist ideology.
- Austria will remain independent: War with Germany and 40 dissent.
The ruling party is the fascists. The second most powerful one is the NSDAP. Try to keep them down.
The Austrian Army in this game is rather weak. It is surrounded by countries with powerful armies except for Switzerland. They have a decent amount of manpower, but don't have too powerful an army and don't have too many leaders. Rebuilding from scratch is suggested as they can build a rather powerful army for a minor. Without any ports, there's no fleet. Aircrafts aren't developed yet, but there are 2 airfields in Vienna and Innsbruck to station e.g. licence products.
The Austrian Army consists of 7 Infantry-Division (3xInf), 1 Mountain-Division (3xMnt), 1 Cavalry-Division (2xCav), 2 Corps-HQ, all stationed near Vienna, and the Theatre-HQ in Central Austria. (1936 TFH 4.02)
With Germany: When Germany asks to annex you if you say "Austria will remain independent" then you will be at war with Germany. The only real way to win is to ally with Italy and hope that the Allies take advantage and declare war.
The other may be seen as bugusing but gives the chance for an allied or even soviet Austria without any mods : Germany will accept any Austrian request for peace, and conquers all provinces they occupied, while Austria has to move their troops out of Germany. If done directly after the event, no shots are fired, only the dissent must be removed. By strictly aligning to the Allies or Soviets from the beginning and embargoeing the Axis, Austria will receive invitations from ~1940 on and may so decide when to enter the war. If Germany has problems with France and Poland, an early start may be possible. The next will be when Germany starts war on Russia. Bratislava is next to Austria, making Slovakia a puppet let their troops leave the front. Hungary is a prime target too, maybe even before they enter the Axis, but this will cost leadership to raise their threat. A run for Rome would last too long, but the Italian troops haven't that much firepower too. And then dig in and wait for the Germans... (TFH Ver 4.02 GSKH normal difficulty)
An alternative, if you are playing with Custom Starts and Prepare for War as possible, is to give yourself just enough IC that you can switch to Very Hard, trigger Prepare for War on day one (and give yourself the minimum neutrality possible), save, swap to Very Easy, and let your likely two corps sized units of Inf/Inf/Eng/AT and LArm/Cav/TD/Eng divisions overrun Hungary, then go on a rampage through the Balkans. After finishing your first round of IC-whoring pump out more troops while pushing eastward into Turkey and later Persia (give time at the border to resupply fuel!). Once even Afghanistan is gone you can (if you did this fast enough and Strategic Redeploy your eastern forces south) probably take Italy if they are not yet Axis (at the very least it is doable as Poland after taking the Baltic States, Czechs, and Austria in a Winter 1936 war, so as Austria you should be able to do this by the autumn of 1937, before Italy joins the Axis). It requires pushing all the way down to Taranto to force Italy to surrender, and is doable with an estimated 4 corps of 3x inf division + 1 LArm (patterns as above) provided you allocated your starting techs correctly to 1936 standards (Tested with 6 corps using Poland).
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