In order to continue the increase in navy strength, as planned, more funds were needed than the navy had available. Hitler therefore proposed to put funds of the Labor Front at the disposal of the navy. This appears from another Raeder memorandum of a conversation between Raeder with Hitler, on 2 November 1934 190). This report, again, is not signed, but it was found in Raeder's personal file and seems clearly his memorandum. It is added: "Conversation with the Fuehrer on 2 November 1934 at the time of the announcement by the Commanding Officer of the "Emden". It reads:

"1. When I mentioned that the total funds to be made available for the armed forces for 1935 would presumably represent only a fraction of the required sum, and that therefore it was possible that the navy. might be hindered in its plans, he replied that he did not think the funds would be greatly decreased. He considered it necessary that the navy be speedily increased by 1938 with the deadlines mentioned. In case of need, he will get Dr. Ley to put 120-150 million from the Labor Front at the disposal of the navy, as the money would still benefit the workers. Later in a conversation with Minister Goering and myself, he went on to say that he considered it vital that the navy be increased as planned, as no wa could be carried on if the navy was not able to safeguard the ore imports from Scandinavia.

"2. Then, when I mentioned that it would be desirable to have six U-Boats assembled at the time of the critical situation in the first quarter of 1935, he stated that he would keep this point in mind, and tell me when the situation demanded that the assembling should commence." (C-190)

Then there is an asterisk and a note at the bottom:

"The order was not sent out. The first boats were launched in the middle of June 35 according to plan." (C-190)

The development of the armament industry by the use of foreign markets was a program encouraged by the navy, so that this

[Page 432]

industry would be able to supply the requirements of the navy in cae of need. A directive of Raeder, dated 31 January 1933, and classified "Secret Commando Matter," requires German industry to support the armament of the navy (C-29). It provides;

"TOP SECRET

"General direction for support given by the German Navy to the German Armament Industry.

"The effects of the present economic depression have led here and there to the conclusion that there are no prospects of an active participation of the German Armament Industry abroad, even if the Versailles terms are no longer kept. There is no profit in it and it is therefore not worth promoting. Furthermore, the view has been taken that the increasing "self-sufficiency" would in any case make such participation superfluous.

"However obvious these opinions may seem, formed because of the situation as it is today, I am nevertheless forced to make the following contradictory corrective points:

"a. The economic crisis and its present effects must perforce be overcome sooner or later. Though equality of rights in war politics is not fully recognized today, it will, by the assimilation of weapons, be achieved at some period, at least to a certain extent,

"b. The consequent estimation of the duties of the German Armament Industry lies mainly in the Military- political sphere. It is impossible for this industry to satisfy, militarily and economically, the growing demands made of it by limiting the deliveries to our own armed forces. Its capacity must therefore be increased by the delivery of supplies to foreign countries over and above our own requirements.

"c. Almost every country is working to the same end today, even those which, unlike Germany, are not tied down by restrictions. Britain, France, North America, Japan, and especially Italy are making supreme efforts to ensure markets for their armament industries. The use of their diplomatic representations, of the propaganda voyages of their most modern ships and vessels, of sending missions and also of the guaranteeing of loans and insurance against deficits are not merely to gain commercially advantageous orders for their armament industries, but first and foremost to expand their output from the point of view of military policy.

"d. It is just when the efforts to do away with the restrictions imposed on us have succeeded, that the German Navy

[Page 433]

has an ever-increasing and really vital interest in furthering the German Armament Industry and preparing the way for it in every direction in the competitive battle against the rest of the world.

"e. If, however the German Armament Industry is to be able to compete in foreign countries, it must inspire the confidence of its purchasers. The condition for this is that secrecy for our own ends be not carried too far. The amount of material to be kept secret under all circumstances in the interest of the defence of the country is comparatively small. I would like to issue a warning against the assumption that, at the present stage of technical development in foreign industrial states, a problem of vital military importance which we perhaps have solved, has not been solved there. Solutions arrived at today, which may become known, if divulged to a third person by naturally always possible indiscretion, have often been already superseded by new and better solutions on our part, even at that time or at any rate after the copy has been made. It is of greater importance that we should be technically well to the fore in any really fundamental matters, than that less important points should be kept secret unnecessarily and excessively.

"f. To conclude: I attach particular importance to guaranteeing the continuous support of the industry concerned by the navy, even after the present restrictions have been relaxed. If the purchasers are not made confident that something special is being offered them, the industry will not be able to stand up to the competitive battle and therefore will not be able to supply the requirements of the German Navy in case of need." (C-29)

This surreptitious rearmament, in violation of treaty obligation starting even before the Nazi came into power, is illustrated by a 1932 order of Raeder, chief of the naval command, addressed to the main naval command, regarding the concealed construction of torpedo tubes in E-Boats (C-141). He ordered that torpedo tubes be removed and stored in the naval arsenal but be kept ready for immediate refitting. By using only the number permitted under the Treaty, at a given time, and by storing them after satisfactory testing, the actual number of operationally effective E-Boats was constantly increased.

This German order for the concealed armament of E-Boats, issued by Raeder on 10 February 1932, provided:

"In view of our treaty obligations and the Disarmament Conference steps must be taken to prevent the 1st E- Boat-

[Page 434]

Half-Flotilla, which in a few months will consist of exactly similar newly built (E)-Boats, from appearing openly as a formation of torpedo-carrying boats as it is not intended to count these E-Boats against the number of torpedo-carrying boats allowed us.

"I therefore order:

"1. S2-S5, will be commissioned in the shipyard Luerssen, Vegesack without armament, and will be fitted with easily removable cover-sheet-metal on the spaces necessary for torpedo-tubes. The same will be arranged by T.M.I. [Inspectorate of Torpedoes and Mining] in agreement with the naval arsenal, for the Boat 'S1' which will dismantle its torpedo-tubes, on completion of the practice shooting, for fitting on another boat.

"2. The torpedo-tubes of all S-Boats will be stored in the naval arsenal ready for immediate fitting. During the trial runs the torpedo-tubes will be taken on board one after the other for a short time to be fitted and for practice shooting so that only one boat at a time carries torpedo armament. For public consumption this boat will be in service for the purpose of temporary trials by the T.V.A; [Technical Research Establishment].

"It should not anchor together with the other, unarmed boats of the Half-Flotilla because of the obvious similarity of type. The duration of firing, and consequently the length of time the torpedo-tubes are aboard, is to be as short as possible.

"3. Fitting the torpedo-tubes on all E-Boats is intended as soon as the situation of the political control allows it." (C-141)

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