c.    Manpower.  If casualties are as high in 1943 as in 1942,
 
GERMANY faces a reduction in the size or an impairment in the
 
quality of her armed forces in 1944.
 
     d.  Armaments. The estimated low production of combat
 
planes will probably restrict the German air effort in 1943 
 
to essentially strategic defensive operations. This will not
 
preclude an offensive concentrated against RUSSIA within a
 
limited area, which might give a local air superiority for a
 
limited time.  The number of operating submarines will increase.
 
German Military operations are not likely to be restricted by
 
shortages of any other form of armaments.  Destruction
 
achieved by the proposed bomber offensive may seriously reduce
 
GERMANY' S production of armaments.
 
     e. Morale. Italian resistance will probably decline at
 
least until the homeland is invaded, when a stronger fighting
 
spirit may be aroused temporarily. The resistance of satel-
 
lite nations is on the decline. ITALY or one of the satel-
 
lites may make peace overtures in 1943. German morale prob-
 
ably will not crack in 1943 but will decline considerably as 
 
the result of the failure to defeat RUSSIA by the end of 1943, 
 
and because of the chaos and destruction inflicted by the
 
UNITED NATIONS air offensive.
 
               EUROPEAN AXIS CAPABILITIES FOR 1943
 
5. Major courses of action open to the EUROPEAN AXIS in 1943.
 
     a. Intensify the war of attrition against shipping.
 
     b. Resume the offensive in RUSSIA.
 
     c. Withdraw to and defend the MEDITERRANEAN island line.
 
     d. Occupy the IBERIAN PENINSULA with a view to closing
 
the STRAIT OF GIBRALTAR and possibly attacking NORTH AFRICA.
 
     e. Assume an active defense on all fronts.
 
     f. Attack the MIDDLE EAST through ANATOLIA.   
 
                               -6-