Side note: It’s also called Parizer in reference to Paris, the city that is neither Bologna, nor Lyon, another french city which would be the actual origin of the sausage.
Im sure if you go to Italy it’s not pronounced balloney,and that the evolution of the language has contorted the way it should be said. However, that’s not guaranteed, for example, the French city of Riems, is pronounced “ranse”, nothing like what it should, if the usual rules are followed.
As an American living in Europe, I wouldn’t be caught dead pronouncing the city “baloney”. The thought never would have crossed my mind to be honest. I’d use an anglicized version of the Italian pronunciation bo-loh-nya. And not because I thought about it, but because anything else would sound rediculous. At least to my ears.
Taking it one step further to the sausage, I’d only use baloney to refer to the American cheap imitation of the Italian stuff. For real Italian bologna, I’d probably pronounce it the same as the city and call it “Bologna sausage”.