[Reinhold comes to take leave of the Werbens, hears the news that the General has not been promoted, finds Else depressed. Else pours out her heart concerning Ferdinande, her father and Ottomar, and his betrothal to Carla. Reinhold declares he loves her, and holds her in his embrace. Else kisses her compass, her talisman, and slips it back into her pocket. Reinhold starts for Sundin to report and take his post at Wissow. At the railroad station Justus tells Reinhold of his betrothal to Mieting, but fears that Mieting's father may change his mind. Reinhold assures Justus that there is no danger of Strummin getting rich from the concession, that the railroad must be a failure, and Strummin will be glad enough to have him as a son-in-law. Justus declares that he has produced nothing worth while since he has been in love--"Oh! this love, this love!" Uncle Ernst has been elected to the city council and will be elected next year to the Reichstag. Reinhold's train moves off. Ottomar is on board, and expects to be the guest of Golm in the spring. The President enters the coupé where Reinhold is. He is much excited, having been in Berlin protesting against the concession. The whole railroad situation is ventilated. The President recalls Reinhold's first prophecy of the storm flood. Madame and Miss von Wallbach, Else and Golm, are at dinner at Castle Warnow as the guests of Valerie. Golm's advances to Else are repelled, and he makes slighting remarks about Reinhold. Else defends Reinhold and leaves the room in disgust. Golm protests to Madame von Wallbach that Reinhold will probably object even to the removal of the dunes, because they are necessary for protection. Madame von Wallbach is disgusted at the failure of the match between Golm and Else, and threatens to go home. Golm now turns his attentions to Carla, asks her to take a ride, and steals a kiss. Carla and Else have an altercation about Ottomar and Golm, Carla having learned from Giraldi of Ottomar's relations to Ferdinande. Madame von Wallbach tells Carla she need not object to Ottomar's mistresses, for all men have them, nor to his debts, for Golm has debts too. Strummin asks Golm for the money he had loaned him, which is now needed to set up Mieting. Golm and Carla ride off alone.