Hi Superceps,
defending Egypt can definately be done but it is also difficult (as in, I’ve seen a lot of players screw this up).
I usually don’t try to defend it at all costs. As opposed to Africa and the Middle East as a whole. Especially with the German opening you suggested, as this implies attacking London is considered a serious option.
So in this particular situation I’d do 1 of two things (depending on my mood and who my opponent is):
The first option simply prevents the fall of London, as all the mediterranean air and ships are positioned to possibly move there. Usually this sends the simple message to Germany: Back off, or else (he will loose the game).
Assuming Germany indeed plays a wise game and continues Barbarossa, use Gibraltar/Algeria as a staging point to funnel aircraft into the Med/Africa.
The downside is, of course, that Egypt is left more vulnerable and can be harder to hold. UK moves before Italy and usually can fly in at least 2 FTR per turn into Egypt. UK2 can even see 4FTR+1TAC (also using the air from India).
Do NOT loose a single land unit in meaningless defenses; Leave no blockers but rather consolidate your troops where they can make a stand. Carefully calculate the odds in Egypt every turn. If all your land units + the increasing number of aircraft cannot hold it, retreat/attack into Anglo/Trans, but always attack any Italians that can be wiped out, keeping your forces together.
For example, if IT has ‘surrounded’ you by positioning armies in Anglo and Alexandria and you are forced to move out because Egypt cannot withstand an attack, attack AES yourself, eliminating a portion of the threat. Maybe you can even attack/strafe Alexandria, eliminating Italy almost completely (but keep a watchful eye out for Italian TRS if you cannot destroy them as well)…
As long as London lives you should never loose Egypt for more than 2 turns. As soon as the threat on London is moved towards Moscow, which you will know by seeing the GE2 builds, build aircraft + some fast MECH in SA and keep funneling enough aircraft from London into Africa.
The second option (my personal favorite) gives you all the above but also some other, more interesting options UK1 against Italy. First you have to realise that you could loose London if Germany launches Sea Lion, but this is even better for the allies.
Evil dicing aside (and I mean REALLY evil), if Germany takes London this cannot be anything better than a Pyrrhic victory, where Germany looses >75% of its Luftwaffe (in order to have at least 1 land unit left for conquest) and will be dominated by Russia. The USA doesn’t need to sweat while liberating London. In Africa, UK1 has some exciting new options: attack/strafe Tobruk. Attacking it means annihilating the Italians there and putting blockers in SZ96&99. Personally I prefer to strafe them, put blockers in SZ96&99 and stack Alexandria. The least thing that this does, is buy you an extra turn of channeling aircraft into Africa. Not even if London DOES go down (temporarily) should you loose Egypt now. An experienced Italian player, also knowing this and not wanting to waste units that can be put to more effective use elsewhere, may even give up Africa all together!