I cabled freely from London on all matters on which I believed the Government should have immediate information.
I think it may be useful if I attempt, in this memorandum, to produce a broad picture of the state of affairs, from the point of view of the war, as I believe them to be from the information that I was able to get overseas.
I am writing you separately on a number of other subjects, and have confined the attached memorandum to matters that have a direct bearing on the war situation.
1 Document 424.
Memorandum by Mr R.G. Casey, Minister for Supply and Development
MELBOURNE, 21 December 1939
MEMORANDUM ON MATTERS CONNECTED WITH THE WAR
It appears to be established that Hitler  was convinced (principally by Ribbentrop ) that Britain and France would not fight-and that, in the unlikely event of their so doing, they could do Germany but little harm, particularly if Russia was not with them. This is the opinion of the Foreign Office and of Sir Nevile Henderson. 
This created Hitler's decision, at almost any cost, to stop Russia joining Britain and France. Russia demanded the same high price from Germany that she asked from Britain-that she should be allowed to 'guarantee' the Baltic States, which meant, in effect, absorbing them.
The above explains why, although the Polish campaign was carefully pre-conceived (there is conclusive evidence that the plan was laid about May, 1939), the campaign in the West was not thought out, and when the Allies declared war, Hitler's economic, military and political advisers were at odds.
This has resulted in the tentative and hesitating attitude of Germany in the West in the first three or four months of the war.
GERMAN PEOPLE I believe that it is wrong to say that the moral[e] of the German people is low and that we may expect them to crack-but they are not the fresh, eager, well-fed people that they were in 1914. They are probably more like the Germans of 1917. There is good reason to believe that there is very little enthusiasm in Germany about the war. The set-up of the present Germany is based on propaganda, strict control and success-clearly not a good basis on which to rely if things are going badly from economic or military reasons.
Villard's articles in the 'Daily Telegraph' are believed to represent an accurate reflection of conditions in Germany. I attach copy. 
The best opinions that I could get were to the effect that one must not expect internal revolt in Germany until some definite and considerable setback has been imposed on the enemy, which is obvious to all and which cannot be concealed. This however might be economic or military.
However, it is believed that if and when revolt comes, it is likely to be a bloody business and there are a great many old scores to settle. Amongst a great many others, the lives of Ribbentrop and Himmler  would not be worth much purchase.
I will explain verbally the affair of 'the Generals', the Dutch border incident and the Gestapo.
THE LOW COUNTRIES The Dutch and the Belgians are, naturally, very frightened. They are completely bewildered as to what to do to be saved. Until quite lately, they would have no conversations with the Allies, as they thought that this would become known and would give Germany an excuse for violating them-although I should think that whether Germany does so will depend on whether it suits her to do so, and on no other considerations.
I was told that it has been established that Germany had all plans ready to go through Holland on 10-12th November, but that they were cancelled at the last moment.
The Belgians are believed to be prepared to resist if invaded. No- one seems to know whether Holland would do more than passive defence by flooding as much of the country as possible. If she wouldn't do this herself it would be done for her.
It is now believed that Belgium will join the Allies and go to the help of Holland if Holland is invaded. If Belgium is invaded or if Belgium went to the assistance of Holland (if Holland were invaded) Britain and France would immediately spring to Belgium's assistance by taking up an advanced line in Belgium.
I understand that a 'project' or scheme has now been worked out for the mutual defence of Belgium, between Belgium and the Allies, should Holland and/or Belgium be violated by Germany.
I believe that Holland has about eight so-called first line divisions and that Belgium has rather more than this.
The only reason for Germany going into Holland and not Belgium would be to secure air bases from which to bomb Britain at closer range, and also, if possible, to get close-up submarine bases. She is said to be able to send her short-range fighting aircraft to escort her bombers from Holland, whereas the distance is too great to enable her to do so from German soil.
It can only be supposed that Germany was deterred from using Holland as a springboard by the possibility of such action encouraging Belgium to throw in her lot with the Allies.
There is also the point that by Germany invading Holland and/or Belgium, British bombing aircraft could reach the Ruhr direct from England, which would save 200 miles as compared with the long journey at present round the north of Holland or the South of Belgium.
FRENCH-BRITISH CO-ORDINATION A feature of the 1914-1918 war was the tardiness in arriving at some adequate degree of co-ordination in the political, military or economic spheres, between the Allies. Based on the lessons of the last war, this important factor of proper all-round liaison has, this time, been tackled early. In fact, the machinery was devised in the six months before war began.
At the top of the tree there is a Supreme War Council consisting of the British and French Prime Ministers, one other Minister (whoever is relevant to the matter in hand) of each country, and representatives of the Chiefs of Staff of each country. This body co-ordinates military strategy and political policy.
Next down the scale is the Permanent Anglo-French Military Liaison Committee ('Military' in the wide sense), which sits in London and consists of senior officers of the three services of each country.
It gets all Chiefs of Staff memoranda of each country, pools and exchanges ideas and generally obviates the working out of ideas and plans in watertight compartments as between the various Services and as between the two countries.
Then there is the Economic Liaison Committee with permanent British and French representatives, which evolves economic strategy.
There is a similar body in respect of Finance.
There are joint purchasing organisations for the purpose of coordinating buying in neutral countries, to avoid cut-throat competition between the two Allied Governments.
Many other liaison arrangements exist between opposite numbers in fighting services and departments of the two countries.
It is said that the above machinery, designed to achieve proper co-ordination between the Allies, is more complete now than it was at the end of the last war.
WHY HAS GERMANY NOT USED HER AIR FORCE AGAINST THE ALLIES? I asked this question of everyone who might be expected to have any views that could be respected. Although several reasons were usually given, the principal reason in everyone's mind was 'fear of reprisals'.
At first I was disinclined to accept this reply. It did not seem to carry conviction. After all, why build the greatest Air arm in history, if you are afraid to use it? Why start a race in air armament-and win that race hands down-and then decide to call it all off? However the answers that I got to the above were to the effect that it is not by any means proven that Germany has won the air armaments race. She certainly has a very big initial advantage in the number of aircraft that she possesses, over and above the Allies. But as to the relative quality of her aircraft, there is rather more than a doubt. Her bombers are apparently not armoured and have inadequate rearward defence. They have fallen victims to the Hurricane and the Spitfire on practically all occasions. The principal German fighter, the Messerschmitt, is apparently not a success. It is said to be overpowered, subject to wing flutter in the top speed range and lands so fast that it cannot be used at night.
One is reluctant to believe that the German aircraft are inferior to those of the Allies. It seems too easy and too good to be true- although the air operations that have taken place certainly tend to make one believe that it is so, in respect of both British bombers and fighters and even of the French fighters. Modern French bombers are practically non-existent.
But, even if the above be false or be capable of correction, to have 'won the air armaments race' means having the greatest and most powerful air force and to be able to use it-and this brings one to a factor of really first-class importance-the supply of petrol, which may quite well prove to be a determining factor, if the air war, when it really starts, tends to be protracted.
The evidence put together by the Department of Economic Warfare is to the effect that, by the spring, Germany will be short of petrol and that this shortage will tend to get worse rather than better.
See argument under heading 'Economic Warfare'.
Apart from the above arguments, it is strongly held in London that the industrial targets in Germany available to the Allied air forces are more vulnerable than similar targets in Britain. It is said that the Ruhr represents the most concentrated industrial target (or collection of targets) in the world, containing in a hundred or so square miles about three quarters of Germany's vital heavy industries.
Again reverting to Germany's petrol shortage, she is no doubt very conscious of the vulnerability from the air of her large synthetic petrol plants between Hanover and Berlin-the destruction of which would be crippling to her ability to continue the war by air. She is dependent on her synthetic petrol plants for a very appreciable proportion of her relatively small petrol resources.
However the bombing of the Ruhr entails the killing of many civilians and neither side apparently wants to be branded as the first to bomb civilians from the air. If one side starts, no doubt the other will retaliate at once-and then the pace is likely to become hot.
It may be said that the point is too nice a one-as Germany had no scruples in bombing civilians in Poland and has had no fine feelings in respect of the torpedoing and mining of Allied and even neutral merchant ships with consequent heavy loss of civilian lives.
Undoubtedly the French have been a factor in delaying at least the commencement of Allied bombing of industrial targets, as they feel themselves very vulnerable to such a form of warfare. They have many highly industrialised towns within easy distance of the German border.
It may be asked how is it possible that the Germans did not foresee the lack of co-ordination between their gigantic air force and their potential petrol supplies. Could this not have been foreseen? I suppose the answer is that it should have been foreseen-but that even with German thoroughness and totalitarian powers of organisation, everything could not be properly coordinated. And synthetic petrol plants on the very large scale that are necessary are vastly expensive and slow to construct. The German history of the last war showed lamentable lack of co- ordination between great Departments of State. One must also remember that the great German Air Force has proved a most potent weapon of intimidation and has, with the Army, been responsible for the bloodless seizure of Czechoslovakia and the bloody overwhelming of Poland.
Another factor worth mentioning, although it probably adversely affects the Allies more than Germany, is the difficulty of improvising the very many large air fields within reasonable distance of the frontier, made necessary by the existing enormous air fleets. The Allies are already in some embarrassment in this connection, and the problem is undoubtedly affecting Germany in some degree. Grazed paddocks, that in the last war could be utilized with relatively little preparation, are no use for bombers except in completely dry weather.
THE WESTERN FRONT The line between Switzerland and the Channel can be regarded as being divided into four roughly equal sections each of almost 100 miles in length.
The Southern Sector from Switzerland to near Karlsruhe is guarded by the natural barrier of the Rhine. From near Karlsruhe to Luxemburg is the Maginot Line proper, defended by a series of great underground works, with advanced earthwork outposts, and concrete posts, tank obstacles and wire in depth. From Luxemburg for about 100 miles north west is the Ardennes Sector, broken country defended by concrete posts, wire and tank obstacles. From here to the Channel is the Low Country Sector, defended by a much less considerable line of concrete posts.
Generally speaking, it may be said that the strength of the man- created defences declines as you go north west from Luxemburg to the Channel.
The line held by the British Army is about 25 miles in length in the vicinity of LILLE, ROUBAIX and TOURCOING.
The minds of all responsible senior officers, but in particular the French, are dominated by the necessity for defence against tanks and low flying aircraft. This has become an understandable obsession with the French, who are continually improving and adding to their concrete defences and tank obstacles in depth behind the Maginot Line proper.
Any conversation with French officers is notable for their continuous reference to 'les chars' (tanks) and 'beton' (concrete).
So far as any line of defences can be said to be impregnable, the French Maginot Line from Switzerland to Luxemburg is believed to be impregnable.
The British line is low lying and wet. The full French working population, both industrial and agricultural, is still in occupation, and the creation of adequate defences is much more difficult, for these reasons, than in the French sector where the population has been evacuated from the frontal 10 miles.
I was greatly disturbed by the lack of adequate concrete defences on the British front-and by what appeared to me to be the inadequate steps that were being taken to improve the position.
There were a few rather old fashioned trench digging machines, and otherwise the work was being done by pick and shovel and wheelbarrow. On my return to London I felt obliged to report to Mr Chamberlain  that I believed that vastly improved and mechanised methods would have to be adopted if the British front were to be ready against a possible spring offensive. I recommended Decauville railways (to save the roads, which were even then beginning to break up), the employment of civilian contractors used to concrete work, the much increased use of modem mechanical trench-diggers, and generally the creation of concrete defences at the rate of many thousands of tons a month (as in the French sector) in place of the existing few hundred tons a month.
Whilst admitting that this might be thought to be none of my business, as there were no Australian troops yet in France, the situation appeared to me to be so obvious and the matter so outstandingly important that I believed that my representations to the Prime Minister were justified. The matter was brought before the War Cabinet and General Ironside  went to France to investigate. There was considerable 'bother' about the matter, but, as a result, work on the defences is being considerably speeded up, a great deal more labour is being made available in France, and large contracts entered into for cement and stone.
The Germans are said to have accumulated very large tonnages of mustard, and it is believed that they propose to distribute it from aircraft. British troops (or rather, so far, a proportion of their troops) are equipped with light oil silk gas proof clothing and goggles.
It has recently been established that the Germans are equipped to use Arsene, and the British are in consequence also so equipping themselves both offensively and defensively-the latter by an addition to the military gas mask. Hence their enquiry (which I cabled to Australia) if we could produce arsenious oxide.
THE PROPAGANDA FRONT German wireless propaganda pours unceasingly into the cars of belligerents and neutrals alike, on separate wavelengths and in their own tongues. The German broadcasts directed at France ask the French peasant and the French shop-keeper why they support Britain in her attack on Germany.
'Is this struggle in which your sons and brothers should die in order to endorse Britain's well known determination to fight to the blood of the last Frenchman? Do not the figures tell their own tale-four million Frenchmen under arms, and 160,000 Englishmen? Cast your mind back-Did you see many English soldiers in France in the last war? It's the same again. Does not the existence of the two great impregnable defences, the Maginot Line and the Siegfried Line, mean that neither Germany nor France have anything to fear from invasion, the one by the other? Is it not well known that Britain, now and throughout the ages, has been a home and a refuge for the jews, who have risen to high and commanding places in British finance and politics? Do the names of Rothschild and Samuel, Mond and Bearstead and Melchett, mean nothing to you-these jews who are in control of British business? Haven't you heard the names of Simon  and Hore-Belisha  and Burgin  in British politics?-all jews, and many more. You know also the bitter experience that we Germans have had with our jews and how, in order to save the German State from sabotage, we've had to deport many of them. English Jewry has bitterly resented our actions against their fellow jews and are determined to wreak the vengeance of the Old Testament against us. How is this your affair? Do you know that although Britain calls herself an Empire, her so- called Great Dominions have deserted her? They will sell their products to her-for cash down-but you won't see a Canadian or an Australian or a South African on your shores. Canada shelters under the wing of America, Australia fears an attack by Japan, and South Africa is split in two with racial schisms. It is your sons and brothers who, as usual, will be called upon to undergo the agony of war, to bear the brunt and to drink the gall. In aid of what? So that Britain, as she does after every war, will grow fat while those who fought her battles for her console each other with their tears. Do you remember what Britain got out of the last war? All our great rich German colonies. What did France and Italy get? Nothing.' The above is not textual, but it is what I wrote down, as being the impression left on my mind by an evening's reading of a pile of translations of German broadcasts in French extending over several weeks while I was in London.
The attitude of the French towards this sort of thing has been a robust one. I was told by French Ministers that it had had much less effect on French public opinion than might have been expected-but still they could not conceal some real anxiety.
German propaganda broadcasting, bearing in mind the fact that it is directed to the average of the population, is well done and is liable to carry a good deal of conviction to unthinking and ill informed people. It has to be replied to-and so the battle on the propaganda front is raging.
In Britain propaganda is done by the Ministry of Information and by a smaller body which is kept in the background and which concerns itself with the dissemination of the Allied point of view through nonpublic and even secret channels.
I asked M. Mandel, the shrewd (his detractors say Machiavellian) jewish French Minister for the Colonies, how he summed up the attitude of the average Frenchman. He said something to this effect-'In the last war France was invaded at an early stage, and the average French attitude was a lively and belligerent one. The sons of the soldiers of the last war are the soldiers of this war, and their fathers are reservists. Both father and son have been disturbed in their minds and in their businesses and on their farms by the increasing menace of Germany in recent years, by several partial mobilisations which are ruinous to millions of French families. Their cry in the last war was a lively "On les aura" (We'll get 'em). To-day it is a more sober and determined "Il faut en finir" (We must make an end of this, once and for all).'
ECONOMIC WARFARE In my first fortnight in London, I was surprised to find the number of people in high places who said, in private conversation, that they would not be surprised if the war were over in from nine to fifteen months. As I subsequently discovered, this view is based almost entirely on Germany's lack of some vital commodities and on our being able further to increase this shortage by appropriate action. It is not based on the supposition that Germany will crack through internal revolt.
I subsequently asked the Ministry of Economic Warfare for the facts on which the above views were based.
The Ministry of Economic Warfare have compiled analyses and figures which show a serious shortage of IRON ORE and of PETROLEUM PRODUCTS in Germany. It is not necessary to emphasise the vital importance of these commodities to the prosecution of modem war.
The position regarding IRON ORE may be summarised as follows:-
In 1938 Germany used nearly 30 million tons. Of this, only one quarter came from domestic German sources.
She imported 22 million tons of which the most important single contribution (in quantity and in quality) was from Sweden, with 9 million tons. Of her 1938 sources of import, 9 1/2 million tons, being from Spain, North Africa, France, Newfoundland etc., is no longer available to her.
After assessing what additional iron ore Germany is likely to get from Russia and contiguous neutrals, after taking increased scrap into account, and after analysing all the relevant factors, the Ministry of Economic Warfare believes that Germany will have to import at least 11 or 12 million tons from Sweden in the first 12 months of the war, even if major operations on land do not develop. In any event her iron ore supply position is such that they conclude as follows- 'If Germany survives the shortage of iron which may occur in early spring of 1940, it appears that she can only do so by creating a serious problem for herself in the late winter of 1940-41. If the least favourable estimates prove to be correct, severe economies in the use of steel will become necessary by the end of the present winter.' The Economic Warfare Department considers that complete stoppage of Swedish iron ore exports to Germany would probably end the war in a few months.
Discussion of the means by which the Swedish iron ore traffic might be interrupted are, in consequence, of a great deal of interest.
As regards PETROL, I summarise the main points in the argument of the Economic Warfare Department as follows- In 1938 Germany used 8 million tons.
It is estimated that, even with civil rationing, she will need at least 10 million tons in the first twelve months of war.
Owing to much lesser peacetime use of private cars in Germany than in Britain, rationing will produce less economy in petrol than in Britain. Even in Britain, with fairly severe rationing of private car petrol, total consumption of petrol in war is anticipated to be appreciably higher than in peace.
Germany is believed to have had stocks of 3 million tons of petrol on 1st September.
Her annual domestic production of synthetic petrol (principally by hydrogenation from brown coal) is about a maximum of 2 1/2 million tons, which can only increase slowly.
She can probably get, in the first six months of war, up to a maximum of 1 1/2 million tons (i.e. at the rate of 3 million tons a year) from nonGerman sources, principally Roumania.
By March-April 1940, the Ministry of Economic Warfare believe that Germany's petroleum position will be critical if Britain can contrive to control the situation by blockade and other means that are open to her.
This situation emphasises the importance, as military targets, of the big synthetic petrol plants in Germany.
Besides iron and petrol there are important shortages in Germany in other directions-principally fats ('guns or butter') cotton, rubber and some metals.
Germany is said to have about two years supply of grain.
Britain's decision to regard German exports as contraband is a great blow to Germany, by reason of its denial to her of this means of acquiring foreign exchange. With sea imports denied to her, it may be asked what use has Germany for, say, dollars or yen or pesetas-or the currency of neutral overseas countries to which she has been, even in wartime, sending her exports in neutral bottoms? The simple answer, of course, is that dollars or yen or the rest can readily be exchanged for Swedish or Dutch or other currencies of contiguous neutral countries on which she relies to get essential imports. Indeed, in order to short circuit even this exchange operation, the Ministry of Economic Warfare says that Germany is requiring Balkan purchasers of German goods to pay in Swedish Kroner, South American purchasers in Dutch Guilders and Japan in European currencies generally.
WHAT IS THE ALLIED WAR PLAN?
When I come to put down on paper the broad plan of the Allies for bringing the war to a successful conclusion, I am in some difficulties. I asked the blunt question of the half dozen men who might have been expected to be able to reply. The following, whilst not being the specific reply of any one individual, is my interpretation of the position from a number of conversations.
The role of the Navy is well known and obvious- (1) To contain the enemy fleet (2) To keep the seas open for Allied troop movements and supply, and (3) To implement the business of economic warfare through maintaining the blockade of Germany by active and passive methods.
I believe the function of the Allied land armies to be a defensive one. I hope and believe that land forces will not be used to attack German established defensive lines-and there is, at present, no other avenue for their use. It is not impossible that, if the war is protracted, some large tank may be developed capable of walking over or through existing defences-but this does not exist at present.
The above is not meant to convey the impression that the role of the Army is an unimportant one. The enemy has great land forces and may quite well propose to use them, no matter how strong our defensive lines-but, in any event, whether he uses them or not, the Allies are obliged to maintain land forces of at least something of the same order as the enemy, as a matter of precaution. It is also possible that new fronts may develop through enemy initiative, on which the Allies may need to restrain the enemy, if not to attack him.
When I say 'the enemy', this, of course, may quite well include Russia as time goes on. The complete uncertainty as to what Russia will do is the factor that makes for what might be interpreted as hesitancy on the part of the Allies. The initiative in the broad sense is with the enemy at present-and in particular with Russia.
I have written, earlier, of the probable reasons for German inactivity in the air up to the present. The Allies do not want to 'start something' in the way of real air activity until their combined air strength (and air defences) are relatively and positively more adequate. When the time comes the Air arm will be the offensive arm.
I believe that [sic] forceful militant prosecution of Economic warfare to be probably the least costly and the most effective weapon in the armoury of the Allies. I think this is recognised in London. On what may be called the passive side of Economic warfare, large sums can be spent in buying up, at better prices than the enemy can afford to pay, commodities and supplies in neutral countries contiguous to the enemy. There is a practical limit to the extent to which this can be done-a limit imposed by considerations of foreign exchange, of forcing prices up against ourselves (as well as the enemy) and of the reluctance of the small neutral countries to deny their markets completely to Germany, through fear of the consequences.
As to what I may call militant Economic warfare, sabotage in the many forms that ingenuity can evolve, plus well placed money, can do quite a lot. This is not being overlooked.
And-last but not least-politics-the business of converting passive or ill disposed neutrals into 'friendlies' and friendly neutrals into allies.
In this regard, discretion is necessary. There are many instances in which a 'benevolent neutral' is better value than an ally. It is to the enemy advantage to open up new minor fronts in order to disperse the Allied effort. For instance, if Roumania openly declared her adherence to the Allies, she would presumably be attacked at once by Germany, and also probably by Russia-and she would be overrun in quick time. In other words it is clearly no use the Allies turning benevolent neutrals into active allies unless they can, wholly or largely, maintain their front against the enemy with the minimum of assistance from Britain and France.
And finally TIME-which on net balance is reckoned to be on our side.
I heard it said by friendly critics of the British Government, that their thinking and planning machine is admirable to cope with detail, but that it lacks the man with authority, ability and leisure to work out a big coordinated plan that could be said to constitute the long range Allied war plan. It is said that the War Cabinet is too big and that its members all have great Departments to administer, and in consequence, haven't the time to give to broad forward thinking. There is probably something. in this criticism-but I never heard from any of the critics any proposals for broad lines of Allied action that sounded feasible and attractive.
I have heard responsible (certainly not the most responsible) men say that they believed we would gain by declaring war on Russia.
When asked what we would gain, one is told that (1) we would end the uncertainty of what Russia is going to do, (2) we would force Russia to use up her own commodities and lessen or even completely dispose of her ability to supply Germany, (3) we could bomb at short range the Russian oil wells and refineries between the Caspian and the Black Seas, (4) we might even get Japan in with us, and (5) finally that anyhow, Russia's fighting weight is small.
However, I do not think it probable that Britain will seek by her own action to add to her enemies.
WAR FINANCE As to how the war is to be financed in Britain, there is very little to say, other than that high taxation and formidable borrowing will be resorted to. Britain has financed her war effort so far by taxation, and by treasury bill finance coupled with the use of the Exchange equalisation account. She has deferred public issues of long terms [sic] funded debt until the large funds being paid out to contractors for war supplies have circulated sufficiently to create an easy money market.
I made certain suggestions by cable as to how we should finance our overseas war expenditure by arrangement with the British Government, which I think are capable of being put into effect with advantage.
While I was in London Mr J.M. Keynes  made some public proposals for war finance, which will have to be considered, probably by the Governments of the Dominions as well as by the U.K. Government.
WHAT WILL HAPPEN? As to the future, it is entirely a matter for conjecture as to what will happen. It is regarded as not [at] all impossible that Germany and Russia (probably at the instigation of Russia and after Finland is cleaned up) will decide to extend the range of warlike operations to Scandinavia and/or South Eastern Europe. The Allies could give little, if any, direct assistance to the small countries that would be attacked in either instance.
(By the way, in this regard, I enquired how Britain and France had proposed to implement their undertaking to help Czechoslovakia and Poland and the reply was 'By making war on Germany. This was the only way possible and both Poland and Czechoslovakia understood this'.) Britain has guaranteed Roumania (against aggression by Germany, but not by Russia) and Greece, and has an arrangement with Turkey.
It would be very difficult for the Allies to assist the Balkan countries. It is not known if Roumania would resist aggression by Germany and/or Russia.
The opinion is held in London that the Russian Forces are low in efficiency and badly led. However, even if this is true, it by no means enables them to be discounted as an enemy. If the Allies have to go to war with Russia and another front, or fronts, develop, then some tens of Allied Divisions will have to be diverted to hold them. One is reminded of Salonika in the last war, that the Germans called their greatest concentration camp-in that they 'held' some hundreds of thousands of Allied troops, practically inactive, for the greater part of the war.
It is clearly not in the Allied interest that more fronts should develop. Germany and Russia have internal lines of communication to feed a Scandinavian and/or a Balkan front. The Allies have only outside sea lines-and Allied shipping (as well as trained Divisions) is short, even under present conditions.
Italy is regarded as the key to the Balkan position. If Italy were with us, Yugoslavia would also probably be likewise. With Italy against us, it would be extremely difficult to stop a 'rot' setting in in the Balkans if Germany and/or Russia made a determined move towards South Eastern Europe.
Practically speaking, no price is too high to stop Italy coming in against us, or better still to have her in with us. Hence, inter alia, the high price Britain is prepared to pay for a Trade Treaty with Italy. I expected this to have been achieved before now. I will report verbally on this.
It has been difficult for Britain to get the French to see the value of Italy to the Allied Cause-possibly because France is inclined to leave the Balkans (indeed any 'outside' theatre of war) to Britain to deal with. However, I was told that France was now willing to be more friendly and forthcoming to Italy than previously.
Gamelin's  reputed jest reflects the above. He is quoted as saying that, with a hostile Italy, he would need to place two Army Corps on the Italian-French frontier, with a neutral Italy, four Army Corps and with a friendly Italy eight Corps. The implication being that the Italians are such little use that the Germans would over-run them and come at France from the South East.
However, reverting to the possibility of a Russian advance (after Finland) into Sweden-the Germans are said to be mortally afraid of this possible development, and have warned the Swedes not to give any provocation to Russia, such as by assisting the Finns.
If Russia were to become possessed of Northern Sweden, she would control the great iron ore deposits on which the life of Germany (in peace and in war) depends.
There is, indeed, considerable evidence that the Germans and the Russians are not happy together. The unhappiness is almost certainly mainly on the German side. The Russians and the Germans are developing defensive works against each other on their common border in Poland-and the Russian seizure of Finland is believed to reflect the Russian desire to consolidate the North Baltic against Germany. The Russians have had wonderful dividends from the arrangement with Germany. It has opened the gates of opportunity to Russia in a way that could not possibly otherwise have come about-at little cost to acquire the Baltic States and Finland, with the possibility of a more or less bloodless partitioning of the Balkans to follow.
As to Italy, those in London best qualified to speak, believe that, each month that goes by, brings Italy nearer to the Allies- although there is no certainly that some new turn of the wheel may not reverse the situation. Sir Percy Loraine (U.K. Ambassador to Italy) is very certain that Italy will be benevolently neutral, if not actually with the Allies-and his advice is not to force the pace with Italy. He says that- (1) The vast mass of the Italian people is against Germany (2) That the recent series of changes in personnel in high appointments in the Italian Government and in the Fascist party reflect the movement away from Germany (3) That Italy thinks that, whatever reverses may occur, the Allies will, in the end, win the war, and (4) That Italy would get beaten up by the Allies in quick time if she came in against us, and (5) That she would, inter alia, lose Abyssinia and her other North African possessions.
On the other hand, the Foreign Office tell me that the Italian Press, whilst not lauding Germany, is still noticeably anti- British.
Italy is said to feel that she has been 'used' by Germany and that she is now the discarded ally. The inherent German contempt for Italy has recently been made obvious and apparent. Germany's poor opinion of Italian military valour and of individual Italian Statesmen (such as Ciano ) have [sic] been, I am told, inadequately concealed.
However, in spite of the above, it is admitted that Mussolini  still has some twinge of conscience and some hankering after fulfilling his many pledges to Hitler. A much bigger proportion of the younger Fascists would be with him, had it not been for the Communist attack on Finland, which is said to have made them furious.
Probably the last word that can be said about Italy is that nothing succeeds like success, and vice versa. If Britain and France keep their end up, Italy will be neutral or even with us- but if Germany were to look like winning, Italy might well decide to fly to the help of the victor.
The opinion is held in London that Germany will probably resort to 'crash' tactics against Britain in the early spring. Her raw materials position would seem to debar her from attempting to face a protracted war-or rather perhaps one should say a protracted war in which she could maintain the offensive. It might be possible for her to withstand a protracted and tenuous [sic] defensive war, although there would seem to be little attraction for her in that.
Germany is believed to be using the winter for the construction of large numbers of submarines and so-called magnetic mines, which no doubt will be used in the spring in a serious attempt to deny Britain the use of her feeding ports and estuaries and the seas surrounding her for bringing in foodstuffs and raw materials.
It is believed that she will also, in the spring, attack vital targets in Britain, industrial and military-and that she will do this on the grand scale in an attempt to cripple Britain's war effort and throw the country into confusion and panic.
The evidence tends to show that if and when 'crash' warfare starts it will be an 'all in' business. Germany is said to have adopted Lord Fisher's  motto 'Sink, bum and destroy'. Few weapons, after all, could be less genteel and less discriminate than the magnetic mine, although I have heard it argued that it is no worse than the land mine-but the land mine is laid for the benefit of the fighting forces of your advancing enemy, whereas the magnetic mine is specifically directed against civilians.
As someone said in the last war-Germany has evidently decided that if Britain rules the waves, Germany is entitled to waive the rules. The latter, however, will not be entirely one-sided as Britain has some ideas in various stages of being worked out that are very ungentlemanly.
It would appear to me to be far from certain that Germany will attack by land on the Western Front at all. There is, however, admittedly no evidence that she will not. The concentration of German Divisions on the Western Front plus the Siegfried Line defences are much more than are necessary for the defence of the Franco-German frontier proper (i.e. between Luxemburg and Switzerland), but Germany must believe that there is a chance of Holland and Belgium deciding to throw in their lot with the Allies or, alternatively, the Allies violating the neutrality of Holland and Belgium-because the Siegfried Line is continued northward although in diminishing strength, practically to the sea.
I have not consciously attempted to make these observations optimistic or pessimistic. I have attempted solely to translate onto, paper what appear to be the principal facts and some of the atmosphere surrounding them. It may be suspected that the references (vide the Ministry of Economic Warfare) to Germany's shortage of iron and petrol paint the picture too gloomily from the German point of view. I expressed such suspicion-and was told that not a week passed without the Ministry of Economic Warfare being warned against wishful thinking.
There is, however, one person in England who holds the most desperate and sombre views as to Britain's potential plight-the American Ambassador in London.  He is intelligent, very well disposed and well regarded, and has access to reliable sources of information-and yet he believes that Britain will be beaten to her knees. 
[AA: A981, GERMANY 30, iii]
1 Adolf Hitler, German Chancellor.
2 Joachim von Ribbentrop, German Foreign Minister.
3 U.K. Ambassador to Germany.
4 Not printed.
5 Heinrich Himmler, Leader of the S.S. and Chief of the German Police.
6 Neville Chamberlain, U.K. Prime Minister.
7 General Sir Edmund Ironside, Chief of the Imperial General Staff.
8 Sir John Simon, U.K. Chancellor of the Exchequer.
9 Leslie Hore-Belisha, U.K. Secretary of State for War.
10 E.L. Burgin, U.K. Minister of Supply.
11 U.K. economic theorist.
12 General Maurice Gamelin, Commander-in-Chief of the French Army.
13 Count Galeazzo Ciano, Italian Foreign Minister.
14 Benito Mussolini, Italian Head of State.
15 U.K. First Sea Lord 1914-15.
16 Joseph P. Kennedy.
17 This memorandum was referred for the information of members of War Cabinet on 4 January 1940 (see AA: A2671, 5/1940). War Cabinet Minute 121 of 5 January 1940 reads: 'The Minister for Supply and Development traversed his memorandum on his mission abroad and amplified it at certain points. The Prime Minister thanked him for his review, which was noted by the War Cabinet' (see AA: A2673, vol. 1).