Very interesting - thanks for the confirmation. It has always seemed to me that Mussolini was not really interested and as Ciano says wanted a (cheap) war. Even Halifax on the British side was trying not to give concessions prior to a proposed conference but the Italian Ambassador, presumably at the behest of Ciano or Mussolini was emphasising the need for "Precisions" in order to facilitate the Talks. The French were clear (and Halifax understood it well) and were pressurising the British for concessions on all three, Gib, Malta and Suez - at least demilitarisation and probably internationalisation (and an outside chance of occupation). At the outset Hitler was very encouraging and wanted Italian participation but once the scale of the French defeat became obvious, wanted nothing to do with the Italians - hence "too busy" to see the Italians and von Epp in Rome dismissive of Italian participative.
Since we are what-iffing here, it would make things easier for Germany if they didn't let the BEF get away at Dunkirk. The British would have a little more of a struggle getting back into the war later on. Depending on the time frame between the peace treaty (armistice?) between Britain and Germany was, I think that the Commonwealth nations would hesitate getting back into the war. Maybe not New Zealand though since they had that all or nothing support of the mother country.
Thanks for recognizing New Zealand's staunch stand with the UK. I don't think the Commonwealth under those circumstances would've felt obligated to interfere in a battle between the bubonic plague and cholera, nor between Stalin and Hitler. What they would be doing, was preparing for a future war.
Still have found no trace of offers of Malta / Gibraltar, Ciano's diaries definitely doesn't mention them, actually the British ambassador's attitude he reports is more like "even if currently weak we will fight if we must and ultimately win" not an opening for concessions. But faced with an peace offer (not armistice) like the following what would Britain do? - Germans pull back from Norway and Denmark, the neutrality of both countries is guaranteed by both Germany and Britain (this will give Hitler access to Swedish ore which is his main concern, he has no need of bases in Norway against the USSR if no Lend Lease is coming along that route, Methereological bases in Danish or Norwegian territories may be disguised as civilian installation though the info gathered is important to the LW. - The Germans pull back from Belgium, Luxemburg, France ad the Netherlands, but get to keep Alsace Lorraine. French rearmament is limited by the treaty to something the Siegfried garrison can easily handle for a 10 years duration (this leaves a big hole in Alsace Lorraine in the Maginot line defences so some the Germans may have to concede some sort of DMZ there. - This is a peace treaty so all POW get returned (a huge motivation for the French to accept though not for Britain if Dunkirk goes as historically). - Poland gets drastically resized to an area around Warsaw, the complete elimination of Poland is probably unacceptable to the British, and it's reconstruction is not likely to alarm Stalin much more than he already is as long as nobody questions the Soviet occupation zone. - Mussolini (if he did enter the war) gets a few alpine passes and possibly Tunisia so that he can claim a victory (though Italy holding both sides of the Sicily - Tunisia narrows is something Britain may resist, he may be have to content himself with the return of any shipping seized by the RN after the DOW thanks to his stupidity (and a peace treaty will automatically annul any grounds for interment by neutrals like the USA). This leaves Stalin as the main beneficiary of the war so far, he has got the Baltics, part of Poland, and Karelia and Bessarabia, but he is now politically isolated against a German attack. Note that this situation is very similar to what would have happened if Britain and France had not declared war in 1939, though Hitler would have gotten more of the Baltics (where there was a significant Germanic aristocracy) according to the secret clauses of the RM pact, and Stalin may have not managed to grab Bessarabia and Karelia with Hitler unoccupied West. It's still a big defeat of Britain policy but that's what usually happen when the military fail to support policy as in 1940 and is by no means unacceptable. The big fly in the ointment is that by then nobody trusts Hitler, but if he openly comes up with that sort of offer public opinion may be too much especially if he plays correctly the card that it was not him to declare war on the western powers in 1939.
Maybe you looking in the wrong place Tired Old Soldier Of course the British were playing hardball and even Halifax, who what ever one thinks of him, was brilliant Diplomat and was not about to concede the Med to Mussolini without achieving a Peace Deal with Germany The French however were more than Happy to Surrender British control of the Med if this stopped Italy entering the War and brought Hitler to the conference table. It would be nice to have a copy of the French papers! Halifax's discussion with the Italian Ambassador P159 in War Cabinet Conclusions for 27th May 1940 - free to download and a veritable mine of information: http://www.nationalarchives.gov.uk/cabinetpapers/cabinet-gov/cab65-second-world-war-conclusions.htm#Cabinet%20Conclusions%201939%20to%201945 And these bits which are reported from Cadogan's Papers
Britain out of the war? Well the odds that Hitler becomes Emperor of Europe go up considerably! Is the USA safe? Well in light of recent events ( http://www.star-telegram.com/2013/03/24/4724519/what-if-texas-really-did-secede.html ) I kind of wonder if the Axis could have persuaded the American South to secede and join the Axis! It would make for some interesting Unity Of Command scenarios if the US Civil War could get refought with WWII era weaponry.
How about "Panzers on the Potomac" for a scenario, with a NAZI/Dominionist force pushing North through Maryland in the footsteps of Robert E. Lee? Was such a thing in the realm of possibility? Hard to say, but Winston Churchill's "Never was so much owed by so many to so few " might be the biggest understatement of all time. JeffinMNUSA PS. And dominionism was and still is a huge force in American politics in the South; http://www.stormfront.org/forum/
In relation to Malta....the point was that the British expected the Italians would ask for it...as in, if the roles were reversed THEY would ask for it... not that the Italians expressed a concrete desire for it. All the "involved" parties were still dancing around the outside of the issues at that point. That's why you'll not find anything in Ciano's diaries.
At that time the RAF had far more Hurricanes than Spitfires. Even by 10 July 1940 there were 29 Hurricane squadrons to 19 Spitfire squadrons. As important as the numbers of fighters and their quality was the fact that in the B of B pretty much all RAF aircrew who were shot down were on home soil (assuming they survived, and most did) whereas almost all Luftwaffe aircrew shot down were taken prisoner. Dismissing the RN as [just] a large fleet is to completely misjudge its importance. Arguably what stopped the Germans invading was not the outcome of the B of B but the fact the RN was massively more powerful than the German navy. The channel might only have been 22 miles wide (at its narrowest point) but most German forces would have had to travel at least twice that far to reach their beaches, e.g. Boulogne to Bexhill on Sea is about 50 miles. That's not a distance you want to be travelling with the might of the RN after you. Personally I do not think there was any reasonable chance the Germans could have successfully invaded Britain, Churchill in particular was aware of that.