In Norway it had lost ten destroyers and three cruisers. The Scharnhorst and Gneisenau had been put out of action by torpedo hits. Of the three 'pocket battleships' with which Germany had entered the war, the Lutzow had been damaged by torpedoes, the Admiral Scheer had engine trouble, and the Graf Spee had been scuttled after the naval action off Montevideo, Uruguay. The new battleships, Bismarck, Tirpitz, and the cruiser Prinz Eugen, would need until the following year to train their crews and work up to combat readiness.

To cover the Sea-lion invasion, face the Royal Navy's Home Fleet, motor torpedo boats, coastal batteries, submarines, minefields, and the combined air units of the Fleet Air Arm and the RAF, the Germans had only one heavy cruiser, Hipper, two light cruisers, half-a-dozen destroyers, and some U-boats.

No wonder that the German navy had sent motorized naval commandos with the panzer armies that invaded France, as part of an attempt to seize French warships. But the French sailed away. Even the incomplete battleship Jean Bart had escaped just before the Germans got to St. Nazaire.

Churchill, afraid the Germans would still be able to barter armistice terms for the warships they badly needed, ordered the Royal Navy to persuade the French crews to sail beyond German reach or scuttle. In July at Oran in French North Africa units of the French navy came under the gunfire and bombs of the Royal Navy. The blood 1,300 French sailors spattered all over the British, for two or three generations.

Sea power still decided the fate of nations. In the US nothing worried Roosevelt and his advisers more than the threat to their eastern seaboard that would come if Germany controlled the Royal Navy's ships. All America's decisions were based on this fear, and Churchill tried unsuccessfully to play on it.

Undoubtedly Hitler and most of his advisers would have preferred a negotiated peace with Britain after France fell. Count Ciano, Mussolini's son-in-law, wrote in his diary, "Hitler is now the gambler who has made a big score and would like to get up from the table risking nothing more."

So confident was Hitler that the game was over, and Britain had lost it, that he disbanded 15 divisions and put 25 divisions back to peacetime footing. But the British were gamblers too. They wanted double or nothing.

By the middle of July, Hitler issued Directive No. 16 "Since England, in spite of her hopeless military situation shows no signs of being ready to come to a compromise, I have decided to prepare a landing operation against England, and, if necessary, to carry it out." Many historians have italicized the final half-dozen words of that sentence claiming that it shows he was never in earnest. A more powerful indication of the unreality of Directive No. 16 is its timetable: all preparations were to be ready by the middle of August.

The Directive was so secret that it was sent only to the Commanders in Chief. But Göring passed it on to his Air Fleet commanders, and did so by radio. To put such an important message on the air was an unnecessary risk but the Germans had great confidence in their coding machines. At all levels of command, the Luftwaffe used the Enigma coding machine, at this time changing keys two or three times each day. The Enigma was a small battery-powered machine not unlike a portable typewriter. Rotors change the cipher, and the receiving machine lit up each letter.This was then written down by one of the code clerks.

When war began the British staged a big cloak-and dagger operation to get their hands on an Enigma machine. This was hardly the intelligence triumph that recent claimants suggest, as the company making them had had virtually identical Enigmas on sale to all comers since 1923. Having left things rather late, British intelligence were now fiddling with their machine desperately trying to decode intercepted German messages. It was very much a hit-or-miss affair. (In spite of all the nonsense written about it, very few vital messages of this period were decoded, and it wasn't until the “Colossus” computer began its work in 1943 that there was a regular flow of information.) When reading about Enigma it must be remembered that armies and air fleets received orders by land line teleprinter. Radio communication was not reliable enough for the very long and very complex orders required in modern war. And the Germans whose monitoring service was excellent were well aware of the danger to security that radio presented. Only rarely, as with this foolish risk taken with Directive No. 16, did the Enigma intelligence pay such a dividend. It gave the British the German code word “Sea-lion” and was a shot in the arm for the code breakers. Some claim that this decoded message prompted Churchill to make his 'fight on the beaches' speech.

When the German naval Commander in Chief received Hitler's Directive No. 16, his response was immediate. The Admirals were agreed that no date could be determined until the Luftwaffe had air supremacy over the Channel but they produced a draft plan and on 28 July the army looked closely at it. The navy planners proposed a beachhead near Dover. By using the narrowest section of the Channel they could lay minefields to protect the invasion fleet corridor. Submarines would be assigned to the Channel in spite of the difficulties these shallow waters presented to submarines, and more to guard the North Sea flank. It was estimated that the navy would require ten days to put the first assault ashore. The army was horrified.

For the attack westwards through France in May, the German army command's objectives had proved ridiculously modest, in the light of its panzer Generals' achievements. Now the army was determined to show more ambition. It told the navy that it wanted landings all along England's south coast, from Folkestone to Brighton, with a separate crossing from Cherbourg. The army would need tanks and wheeled vehicles which meant all the car ferries must be employed, together with the other cross-Channel tourist facilities. The first wave must be ashore within three days. The primary objectives were massive areas of southern England almost as far as London. And, in case you are still taking all this seriously, the first wave was to consist of 260,000 men, 30,000 vehicles, and 60,000 horses! Having looked at the navy's proposal, Walter von Brauchitsch, the army's Commander in Chief, and his Chief of the General Staff, Franz Halder, stated unequivocally, "We cannot carry through our part of the operation on the basis of the resources furnished by the navy."

On 31 July Hitler summoned his army and navy chiefs to the Berghof, his chalet in the Bavarian Alps near Berchtesgaden. Grossadmiral Erich Raeder explained the navy's position first. Preparations were going as fast as possible. The navy was scouring occupied Europe for suitable barges, but the work of modifying them for military use and getting them to the Channel ports could not be completed before 15 September. In view of the army's demand for a wider front for the landing, and with the prospect of autumn storms, it might be better to plan for an invasion in May 1941, said Raeder.

Hitler did not get angry at this suggestion but he pointed out that the British army would be better able to deal with an invasion by the following year, and suggested that the weather in May would be little better than that in September.

Having put the navy's point of view, Raeder left the conference. Hitler continued to discuss "Sea-lion" with his army commanders. At one point he went so far as to say that he doubted whether it was technically feasible. However no such doubts intruded into the Directive of the following day. It was signed by Feldmarschall Keitel and came from the OKW, the High Command of the combined armed forces which Hitler personally controlled. Preparations were to continue, and all would be ready by 1 September. Meanwhile the Luftwaffe would begin a large scale offensive and, according to the effects of the air raid, Hitler would make a final decision about the invasion at the end of August.