There was more than Europe in the Cold War, so I don't see such a measure lasting very long. The first nation to break down the walls and say "welcome back" to the Germans has a new ally.
Precisely. I suspect the first to break it will be outside Europe, Canada or a South American power seem likely possibilities, but once the isolation is broken Europe is going to rush to make friends. Of course that leaves the possibility that the Soviets kick the door in and declare any friend of Germany an enemy...
Of course a lot depends on the domestic politics of the thing and I really don't know how this will play out. Devastated Germany, but recognized Third Reich with Donitz as leader, but total diplomatic isolation? You've either got a Nazi North Korea or instant civil war, and I really can't tell which. On the one hand there's not a whole lot arguing for the stability of a Nazi government, on the other there are going to be a lot of people looking for round three if only to break the isolation, and the Nazi's are going to be quite attractive to people thinking along those lines. For that matter I have very little concept of what Donitz as a long term leader would look like.
That said, I really wouldn't worry too much about Germany actions; isolated Germany is quite resource constrained, and that breakdown of the isolation will come before they could become anything like a threat in their own right. Of course a NATO allied, defeated but recognized Nazi Germany with 1914 borders sounds like one hell of a slippery slope towards hell to me. Maybe enough to isolate the US from Europe entirely and turn the Cold War into something else entirely.
The details can be argued about, but I have to agree. This is good, original and not quite as ASB as it seems at a glance. Considering that things like the Morgenthau Plan were being kicked around I could see some particularly ugly versions of the war leading to this.
All that said, I would strongly advise you to take a look at CalBear's Angle/American Nazi War (
https://www.alternatehistory.com/discussion/showthread.php?t=211950), especially the later bits, if you intend to take this any further.