The Independent State of Croatia (Nezavisna Država Hrvatska, NDH), which came into being during Hitler's Blitzkrieg against Yugoslavia in April 1941, was nominally included in the Italian sphere of influence in the Balkans. It soon turned into an uneasy condominium, however, between its formal Italian mentors and the Germans. Italian influence was largely symbolic, while German officers, experts of all profiles, businessmen and officials were prominent in Zagreb from the outset. Mussolini was deeply mistrustful of German intentions, and suspected that Germany sought a leading role in Croatia in spite of Hitler's assurances to the contrary. Nevertheless, the Italians could not devise a strategy to bring their nominal Croatian protégés to heel.
While there is no evidence of a German ‘grand design’ to undermine Italy's aspìrations in the Balkans, it is certain that the Germans never intended to give up their leading role in the economic sphere. By early 1942 they secured control over all key natural resources of the NDH and most of its industrial capacity, often acting behind their Italian partners' backs in pursuit of their objectives.
Also in 1942 the Wehrmacht made a strong bid to bring Croatian armed forces under its command and control. While this caused some intra-German disputes, and was resisted by the foreign ministry, it proved ultimately successful due to the rise of insurgency which threatened strategic interests of the Axis. Again, Italian claims to precedence were disregarded.
The most serious dispute between Italy and Germany in the NDH concerned large joint antiinsurgency operations in the first half of 1943, and the Italians' refusal to give up their links with the Četniks. The breakdown of Italo-German military co-operation in the NDH reflected a deeper malaise of the intra-Axis relationship. It was founded upon different assumptions and objectives, but such differences remained unstated. The rivalry between Germany and Italy in Croatia vividly reflected this deeper schism between the ultimate objectives of Mussolini and his brutal Teutonic friend.