I’ve been thinking about this topic and I came up with a rule for France’s surrender that’s fairly simple and would give some extra options for the Axis. Here it is:
Puppet States
When the capital of any minor power is captured, the invading player may elect to establish the conquered power as a puppet state instead of incorporating the territory into its own. The “minor powers” are France, Italy and Australia.
When a minor power becomes a puppet state, it switches sides and joins the opposing alliance. It immediately regains control of all territory previously conquered by its former enemies and returns control of all territory it has conquered to its former enemies. It loses all money in its treasury. This money is not plundered and may not be spent by any power. The puppet state retains control of all of its units in land belonging to it or its former enemies. If it has units stationed in territory that belongs to a former ally, such units are absorbed by the former ally and become units of the same type belonging to the appropriate power. If any former allies have units in the puppet state’s territory, those units become invading units and the resulting battles are fought immediately in a special combat round. These units may not retreat unless they are air units. Naval units grouped with newly hostile navies are treated as new purchases deployed into hostile waters.
After this process has been completed, the puppet state now operates normally except it has switched to the opposing side and the player who established the puppet state now controls it. If a former ally of the puppet state is able to take its capital territory, the capital is considered conquered and not liberated. The former ally has the option of repeating the puppet state process and returning the power to its original alliance, in which case the original player controlling that power now regains control of it. The puppet state option does not go away and may be repeated indefinitely by the two alliances as they conquer and reconquer the capital territory of the minor power.
Because the capital territory never switches control during a puppet state conversion, major factories are not reduced to minor factories. National objectives still apply for the puppet state. When reading these rules, replace any instances of the term “Allies” or “Allied” with “Axis” and vice versa. The only exception to this is France’s national objective. The one-time bonus of four infantry is never available to Axis powers when they conquer or liberate Paris and is awarded to France even if being converted back into an Ally through the puppet state process.