If it was kept small, like a 5 vs. 5 DD or something similar, it could easily work. There's fewer people to balance and you can kick out what you don't need. The problem with larger Axis vs. Allies or UK vs. Germany is the type of ships available for balancing.
For your UK vs. Germany room, there would be several problems.
As to destroyers, Germany would overwhelm the British with the Z99. There are always a lot of them, and usually they're high level. British DDs alone, even 6" gunned L classes, have trouble with them. You'd have to let in more UK destroyers or limit the amount of Z99s.
Cruisers might be alright, they're fairly diverse. I'd be surprised to see any BB in a room like this.
If a carrier came in, you'd have Attacker vs. Seydlitz. Baby flattops against a larger carrier that can hold more aircraft and provide AA for itself.
Beyond that though, the main problem is the room itself. People are used to balancing by switching sides. We solve balance issues by having equivalent ships to work with or changing teams. In a UK vs Germany game, you can't change teams and many of the ships aren't equivalent. It might be possible to sort through that kind of mess, but most players aren't that patient. If a game doesn't start fairly quickly or it looks like there's going to be balance issues, I leave. It's just not worth it. That what I've seen in every game divided by nationality so far.
Imagine what a US v. Japan game would be like: a bunch of Fletchers, DDXs and Brooklyns against a fleet of TWs and Oyodos. Might be interesting to watch, but I don't think I'd want to play it.
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