What if Mussolini joined the Allies in 1935

What little people know is that before the Ethiopian War in 1935, Mussolini, in spite of being a dictator, was very admired by Britain and France (also by GANDHI!!!), because he had good leadership qualities, he was not an expansionist, and he was firmly protecting Austria from any German aggression. The height of his prestige came to the maximum in Apr 1935, when in Stresa, a little town in the Alps, Italy, France, and Britain signed an agreement, known as the Stresa Front, to stop German aggressiveness. Unfortunately, it didn't work and, as we all know, Mussolini dragged Italy in a vicious circle by starting the Ethiopian war in Oct 1935.
But if the Stresa front worked?
I'll only say one thing: in 1935 a combined army of the UK, France and italy would have easily defeated Germany.
Now it's your turn: how would be Europe now?

Alright so let's assume this coalition happened and they all declare war on Germany when Hitler attempted to take over Austria.

First, I agree with you in that Germany didn't stand a chance. They were still deep in recession at that point and have no finished expanding their army and navy. A full assault on 3 fronts (from the west by France, from the south by Italy and a naval invasion from the UK) would have swiftly stopped Germany, who does not have any allies yet. Most likely, the expected outcome is more reparations, a new government acting as a pro-french and british puppet and perhaps some extra territory given to Mussolini for his help.

With Germany out of the picture however, it will hinder Italy quite a bit after. If they continue their expansionist route, they will have to face their former allies again, and this time without a superpower Germany to help them. We know from our timeline Italy was in a terribly position for a world war, so it will be hard for them to do much, but with the extra presitge that Italy would get stopping Germany, they might sneak through some stuff.

Most importantly, without a world war occurring, the main emphasis now will be Europe vs the communist USSR, without a strong fascist country uniting them. It also means the US would still become increasingly powerful, but not the most dominant Capitalist country like in our timeline post-WW2. Japan will also have more trouble expanding as well, without Germany placing the allies focus on Europe. They woudn't be able to take anything besides China.

Finally, the civil war is much closer than in our timeline, and the republicans might even beat the Nationalist side without Germany and Italy togther helping them. It might even lead to the UK and France helping so a Hitler doesn't appear in Spain.

So, basically, the fascists all get screwed over in the end

A good position and an interesting scenario, especially the part about Europe vs the USSR.
According to me, however, without a Germany to protect it, Italy, would have tried to get closer to the democracies, and therefore, when Mussolini would die, perhaps there could be some free elections.
For the rest, I totally agree with you.