Prussia might be bought by giving it free hand in Germany.
There is no way they do that, Austria is more interested in Germany than it is in Italy. Giving Prussia a free hand would mean losing Germany which is not in Vienna's interests.
France no doubt will object but if Austria and Prussia ally it will have to back down. Russia might object too but don't know about Britain.
Giving the Austrians all of Italy would be objected by everyone especially if it is in a personal union with the rest of the Austrian Empire, it would make Austria too strong in the eyes of the other GP.
Apart from that, it would be loose confederation, much looser than OTL German Empire.
The German Empire wasn't a loose confederation, it was a federal state. And the Austrian Empire was a series of personal unions which while not as good as one centralized state was far from being weak.
Other idea: the Confederation only contains Italy north of Papal States and it is in alliance with it and Two Sicilies.
First you have the problem that you have to find a way to get rid of Piedmont-Sardinia, an independent state which Britain and France have interests in maintaining and Prussia and Russia would oppose such Austrian expansion.
Second you have to find a way to convince the Bourbon dynasty in the Two Sicilies to ally themselves with Habsburgs, the best way to get them in your sphere would be to put a Habsburg on the throne but seeing they failed to replace the Bourbons IOTL at the Congress of Vienna, I doubt they will ITTL. And just to add on the fun IIRC Two Sicilies had good relations with Britain.
Third you have the opposition of everyone both in Italy and outside, Italians basically hate the Habsburgs and many rulers in Italy would oppose such an idea including the Pope who would be worried about becoming an Austrian puppet (just as the rest of Italian rulers) and all GP would oppose such an idea.
Fourthly you have to imagine the massive burden it would be for Austria to have so much Italians in their territory who are only waiting for someone to come and help them gain independence and Austria has many other problems outside the Italians, already IOTL the Austrians were over-stretched between Italy and the Hungarians rebelling and had to ask the Russians for help, thankfully for them Germany didn't do anything in the meantime.