MEMORANDUM.
 
      
 
 
General Smuts was sent a copy of the Aide Memoire presented 
      to the State Department on July 12th setting forth the anxiety 
      of His Majesty's Government as to possible economic peace proposal 
      $o be launched by Hitler. The essence of this proposal was that 
      the world would enter a new and unparalleled era of prosperity 
      if it accepted the totalitarian management of Europe by Germany 
      and that the only obstacle in the way of this era of prosperity 
      was the resistance of Great Britain. To this General Smuts has 
      replied saying that he thinks that it is probable that Hitler 
      will start a peace offensive at an early date with either suggestions 
      for a conference or of peace proposals launched before or after 
      an attack on Britain. General Smuts has doubts about a blitzkrieg 
      on Britain for the present because he thinks that British naval 
      supremacy and the efficiency of the Royal Air Force are two formidable 
      obstacles.
 
      
 
 
General Smuts thinks therefore that an alternative plan may 
      be in contemplation, that would consist of Further encirclement 
      of Great Britain by attempts to seize the Faroe Islands and Iceland 
      on the right flank and Spain, Portugal and Gibralter on the left. 
      Hitler would then have isolated Britain from Europe, especially 
      if the surrender of Gibraltar entailed the withdrawal of the 
      British fleet from the Mediterranean and the loss of the middle 
      East. With practically the whole of Europe in his hands and with 
      Russia