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Yes, that looks correct now. And in your specific case, x-default might indeed handle the rest since Europe is your default, and that's where the unspecified combinations are most likely to be for you.

I wouldn't be too concerned about site speed. These are just links. They don't load any resources or execute any scripts. For most intents, it's similar to text. The main difference is that they will be links that may be followed by the bots. But really, even though you'll have many lines, you only really have two actual links among them. So, I wouldn't be too concerned about this part.

Good luck.

Moon boots. It looks like you decided to target by language, rather than by country-language combinations. And that is acceptible. It has a few issues, for example if you target by FR you are going to send both France and Candaian French speakers to your Europe site (and I don't think you are wanting to do this). On the other hand, if you were instead thinking that you were specifying the country code, no, the code you pasted here does not do that. Per the spec on hreflang, you can specify a language code without a country code, but you cannot specify a country code without a language code. All of the hreflang values you used will be interpreted as language, not country. So, for example, CA will be interpreted as Catalan, not Canada.

Again, I know it's a giant pain to handle all the EU countries. All of us wish Google made it feasible to target Europe as an entity, or at least target y country even. But it's just not the case. Yet. So, the way we do this is generally with application code. Ideally, in your case, I would suggest for that code to generate, for each country, one entry for English in that country (like "en-DE"), and another entry for the most common language in the country (like "de-DE"). That will generate many entries. But it's the only way I know of to effectively target Europe with an English language site.

moon-boots. Pretty close now. You should add the x-default to each site too, and they should be identical (whichever one of your sites you want to present for any locales you've omitted).

But also, realize that "en-it" is a pretty fringe locale. Google woudl only propose this to a search visitor from Italy who happened to have preferences set for English in their browser. While there are plenty of people in ITaly who do speak English, there are far fewer who set their browser to "en".

I have the same issue in Europe. Germany is one of our largest markets. I initially targeted, like you've done, just English in each country. We previously (a year ago) had a German-language site, and that one we targeted to "de-de". When we stopped maintaining the German-language site, we changed our hreflang tag to "en-de". We quickly found that all of our rankings dropped off a cliff in Germany. I would recommend, at least for your largest addressable markets, to also include hreflang tags for the primary languages. Thsi is another thing whcih Google hasn't yet made easy. They allow to target by language without country, but not by country without language. At least in hreflang (which was really developed for language targeting). GSC (the legacy version) had country-level targeting there.

Lastly, you included URLs for your home page here. But I'm assuming you realize you need to make the tags page-specific, on every page. If you put these tags as-is on every page, then you would be sending a signal to google equivalent to pointing every one of your site pages to a canonical of your home page (and effectively de-indexing the remainder of your site's pages). I'm assuming you're just using home page as an example in your posts. But if not, then yes, you will need to do page-specific tags for each page (and the self-referencing ones need to match your canonical tag for the page).

So, that's exactly why I wrote that you should include all the EU countries as specified locales, pointing to the EU site. Only everything "unspecified" goes to x-default. Alternatively, you could point AU, CA, NZ to the US site, and make x-default point to your EU site. I don't think that is as good of an approach though. Like I said, everyone who has a EU site has this issue. It's a pain that EU isn't a valid "locale" for hreflang. Maybe something will eventually be in place to handle better. In the interim, we can add hreflang for all the EU countries (or just prioritize the markets you really serve).

No, that's not a correct x-default implementation. It should point to the same URL on both sites. Wherever the non-specified locales should go (pick one).

As far as reciprocal, Google checks that they are "reciprocal" in that each locale which is pointed to has hreflang tags which point back to the other site for its locale. There is no point in having hreflang tags only on one site.

And, you definitely shouldn't specify just "EN" because that would include the US too.

So, a few things in here to respond to:

On x-default, ideally you want this on both "sites", but it would be the same value. Meaning, you are telling Google that if a search visitor is in the US, serve the US page as a result, if the visitor is in the UK, serve the UK page as a result, and if that visitor is in any other location (one you don't have tags for) then serve the page linked in the x-default tag. So, on both sites, it would have the same value. Wherever you want to send the traffic from any country/language not specified in your hreflang tags.

On the EU tags, there's not a "penalty". There's just no "Europe" locale. Since you need to specify valid locales, the only way I know of to scope "Europe" is to include all the locales (or at least the most popular ones. I generally add the primary language for each country, a few languages for countries such as Belgium, and sometime I add en-[country] for all of them if my EU site is in English only.

Also on the EU tags, you should not remove the EU tags and only tag the US site. Tags will all be ignored unless they are reciprocal.

Lastly, on the redirect. There are several approaches. But if the Google bot tries to index your UK site from a server in the US, and gets auto-redirected, that's not a good thing. One approach is to make the auto-redirect "soft", meaning instead of automatically redirecting, present a dialog asking the visitor whether they want to visit the page they requested, or to instead be redirected to the one suggested for their geographic location. This is also a better user experience for several scenarios like when employees may be using a corporate VPN which is located in another country (like their international headquarters for example), or for when people live near country borders. Yes, you want to treat Google the same way as a person, which is why the "soft" redirect approach has become somewhat of a standard. There are other approaches, like having an international "splash" page, and also yet more approaches. I tend to favor the dialog approach.

While your tags above looks correct, I would also recommend to add "x-default" hreflang tags. This lets the search engines know which version of the page to include in results for search traffic outside of the ones specifically listed.

Related to this, I notice you referred to one of the sites as "Europe", but you only included an en-GB tag. Unfortunately, the specification for hreflang doesn't accommodate "Europe" (I wish it did). So, most of the time I generate hreflang tags for all the most common language/country combinations in Europe, all pointing to the one "Europe" page, when I'm dealing with sites which have a single site for all of Europe. This approach isn't pretty, but I haven't yet found a better one. Perhaps this might explain some of your drop, if now you are only targeting UK and US, whereas before you might have reached other parts of Europe and the world in general.

I would try adding x-default and the other European country/language combinations before just dropping the idea of hreflang tags.

Also, you may want to make sure both of these sites are accessible without redirection from all locations. Search engine bots may arrive from servers anywhere, so you want to make sure you don't auto-redirect them based on geo-ip.