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So what if Bismarck decided that instead of building up a system to isolate the french he will want to include the french in the system.
For this Germany doesnt annex Alsace Lorraine, Germany is not proclaimed in Versailles but somewhere in Germany and the indemnity to be paid is substantially smaller.
Would this be enough to make the french amiable for a german alliance a bit later? What other effect would it have?
France: Would it be more likely to turn in to a Monarchy? Also I read opinions that the loss of Alsace was just the tip of the iceberg and what France really couldnt stomach was that this defeat and the emerging germany eclipsing them irrevocably shattered their idea of being the Great Nation. But putting this aside france will necesserily have its main focus on Germany: its too strong and its a neigbour. He can try to search for allies against Germany (OTL) or without Alsace they might try to ally it?
Germany: Bismarck abandoing an important nationalistic goal will surely hurt his standing with that group. Aside from that without a french enemy what would change in Germany?
Diplomatically the biggest question would be how Brittain might react to a german - french alliance that also likely includes Russia and Austria?