The Croats are linguistically, ethnically and culturally a Slavic people. While the Ustaše did not see themselves as such, why did the Nazis choose to collaborate with what was essentially a nationalist organisation for a Slavic ethnic group?
Political pragmatism and some "creative history"
Germans were not strongly interested in Balkans. Main German concern was to end Greco-Italian War and kick the British out of Southeastern Europe before German invasion of Soviet Union (soft underbelly of Europe) . To this end, they first tried to lure Yugoslavia (which they considered as Serb dominated) into Tripartite Pact. Unfortunately, although this pact offered relatively good terms to Yugoslavia (it was not expected from Yugoslavia to contribute militarily to Axis war effort, and borders were unchanged) , it didn't last long. After large public demonstrations and Yugoslav coup d'état on March 27, 1941 , mildly pro-German government of Prince Paul was overthrown. Who really organized the coup is still matter of debate to this date (British intelligence services are usual suspect), nevertheless Germans (especially Hitler) were furious. Hitler decided that Serbs were definitely anti-German and anti-Axis (which is somewhat true, popular sentiment was such at that moment), therefore Yugoslavia should be attacked and broken up.
Croats were viewed as useful. Croatia was for a long time (till 1918) part of Habsburg Monarchy and Austria-Hungary. Austria-Hungary carefully nurtured Croatian nationalism on the basis of strong anti-Serbian sentiment. This was part of theirs divide et impera strategy, but remained to this very day pillar of Croatian national identity. Of course, Ustashe were virulently anti-Serbian, and this suited Germans very well. Croats were given so called "independent state" and they immediately started slaughtering the Serbs. Serbian guerillas (partisans and chetniks alike) were therefore compelled to fight Croats instead of foreign occupation forces (Germans and Italians) in the practically whole territory of Independent State of Croatia. Italians for their part even occasionally protected local Serbian population from extermination in the hands of Ustashe, therefore playing the role of "good cop" and substantially lowering the cost of occupation (in lives and material) for themselves.
Croats viewed themselves as non-Slavic. Official position of Ustashe regime was that Croats were descendants of Goths, therefore had nothing to do with Southern Slavs (Yugoslavs). Germans played along because it suited them, privately even Hitler considered Croats and Serbs to be practically same, for example in Mein Kampf he mentions them together:
all this racial mixture of Czechs, Poles, Hungarians, Ruthenians, Serbs, and Croats, etc.
He also mentions that Croats are Slavic:
On the one hand, the Hungarians were concerned lest the Slavic groups Czechs, Croats, Poles, etc.
Officially, Germans refrained from making hard racial distinction between these two ethnicities, they even advised Croats to assimilate part of Serbian population. Latter in the war people like Hermann Neubacher advised Hitler to give some concessions towards Serbs because it was in German interest (although he mostly refused).
- Germans generally avoided using the term Slav in their propaganda. Reasons for that are simple, Germany had under their control large and diverse Slavic population, and did not want to unite them. Some of these Slavs were officially German allies (Slovakia for example), Ukrainians were instrumental in the East, Czech were mostly pacified and produced lots of equipment for German military etc ... Therefore, status of each of these Slavic nations was determined according to their usefulness, and some "scientific" explanations was provided (percentage of German blood, descendance from non-Slavic groups etc ..)
The Nazis collaborated with the Soviets when it suited them to do it. So this isn't particularly surprising.
Faced a serious menace in Tito's partisans, they needed to keep their subjects divided. Although political Catholicism was discouraged in Nazi Germany, it usually took the form of fascism in majority-Catholic countries. Collaborating with the Ustasha is not so very different to collaborating with Franco.
Why did the Nazis collaborate with the Ustaše?
The Croats are linguistically, ethnically and culturally a Slavic people. While the Ustaše did not see themselves as such, why did the Nazis choose to collaborate with what was essentially a nationalist organisation for a Slavic ethnic group.
This is an example of how illogical Hitler's brand of race hatred was. Hitler brand of racism was quite pragmatic. He promoted Aryan's as the master race, blond haired blue eyed Germans, but If Japan was in a position to assist him he would claim them as Aryan's too regardless of their physical, ethnic, or cultural roots. For Croatia more important to Hitler than their Slavic ties was their recent past association to Austro-Hungarian Empire which had been Germany's great ally in the first World War. Hitler was an Austrian who saw unanimity between Germany and Austria and the Croats were part of the Austro-Hugarian Empire Croatia in the Hapsburg Empire for 400 years ending in 1918. That and both Croatia an Germany were already at war with each other's enemies independently. Croatia was involved in a great civil war conducted by Marshal Tito to unify all the slav's under one flag. Tito's great benefactor was the Soviet Union. Germany was also at war with the Soviet Union. The nationalist croats who contested Tito's vision were thus Germany's natural allies for both these reasons. History and Current Events. That natural alliance took precedence over racial ties for Hitler.