Cassel returned last night, having travelled continuously from Berlin. At 10 a.m. on Monday he saw Ballin, who went forthwith to the German Chancellor, and in the afternoon he saw Ballin, Bethmann-Hollweg and the Emperor together. They all appeared deeply pleased by the overture. Bethmann-Hollweg, earnest and cordial, the Emperor ‘enchanted, almost childishly so.’ The Emperor talked a great deal on naval matters to Cassel, the details of which he was unable to follow. After much consultation the Emperor wrote out with Bethmann-Hollweg paper, ‘A,’ which Ballin transcribed. The second paper, ‘B,’ is Bethmann-Hollweg’s statement of the impending naval increases, translated by Cassel. Cassel says they did not seem to know what they wanted in regard to colonies. They did not seem to be greatly concerned about expansion. ‘There were ten large companies in Berlin importing labour _into_ Germany.’ Over-population was not their problem. They were delighted with Cassel’s rough notes of our ideas. They are most anxious to hear from us soon.... Such is my report. OBSERVATIONS. It seems certain that the new Navy Law will be presented to the Reichstag, and that it will be agreed to, even the Socialists not resisting. The naval increases are serious, and will require new and vigorous measures on our part. The spirit may be good, but the facts are grim. I had been thinking that if the old German programme had been adhered to, we should have built 4, 3, 4, 3, 4, 3, against their six years’ programme of 2, 2, 2, 2, 2, 2. If their new programme stands, as I fear it must, and they build 3, 2, 3, 2, 3, 2, we cannot build less than 5, 4, 5, 4, 5, 4. This maintains 60 per cent. superiority in Dreadnoughts and Dreadnought Cruisers over Germany only. It will also be 2 keels to 1 on their additional 3 ships.