Although we know a great deal about the events surrounding Hitler's "Halt Order" at Dunkirk, the truth is that the reasons behind it are not completely understood by historians, even now.
It is a mistake, however, to think that the German army just stood around, watching the British Expeditionary Force being evacuated. They were fighting to reach the beaches the entire time the Allies were fighting to get off them. German artillery and aircraft shelled, bombed and strafed the troops on the beaches there without mercy.
Adolf Hitler's "Halt Order" actually just confirmed an order given by General Gerd von Rundstedt, commander of Army Group A (the main German force fighting in western France). In turn, von Rundstedt had issued his order at the request of his tank unit commander, who had lost almost 50% of his armoured forces and wanted to regroup. However, Hitler's "Halt Order" was more specific than von Rundstedt's. It specified that the line of Lens–Bethune–Saint-Omer–Gravelines "will not be passed".
This meant that some of the more advanced German units actually withdrew from positions that they had already taken. In particular, General Wilhelm von Thoma, Chief of the tank section of the Army High Command, was with the leading tanks near Bergues, and could look down into Dunkirk. He sent radio messages, asking to be allowed to push on, but was rebuffed.
It is true that the tanks were in a commanding position, but they were low on fuel, and without infantry support. They were also within range of British naval guns in the channel. Even a Panzerkampfwagen IV (PzKpfw IV) would be outmatched by a 4.5 inch naval shell! The tanks withdrew as ordered.
Hitler's own experiences in the trenches of the First World War were almost certainly a factor. By 24 May the troops had been fighting continuously for nearly a fortnight. Hitler knew how exhausting that could be.
Also, it is certainly true that the ground around the Dunkirk pocket, with its network of canals, was not ideal for tanks. The infantry needed time to catch up. General Franz Halder wrote in his diary:
"The FĂĽhrer is terribly nervous. Afraid to take any chances."
General Halder's diary is also the source of the claim that Goering had persuaded Hitler to allow his Luftwaffe to finish off the encircled troops. His diary entry for 24 May states:
Finishing off the encircled enemy army is to be left to Air Force!
Halder's diaries have been translated and digitised, with the relevant entries for 24 May 1940 in Volume IV.
General Paul von Kleist met Hitler on the airfield at Cambrai a few days afterwards. He is supposed to have remarked that a great opportunity had been lost at Dunkirk. Hitler apparently replied:
"That may be so. But I did not want to send the tanks into the Flanders marshes".
There was also the belief among the German High Command that the war was already effectively won. A handwritten note from Major-General Alfred Jodl, the deputy chief of Hitler's planning staff still survives. It is dated 28 May and was written at FĂĽhrer Headquarters to the labour minister Robert Ley. It states:
"Most esteemed Labour FĂĽhrer of the Reich! Everything that has happened since May 10 seems even to us, who had indestructible faith in our success, like a dream. In a few days four fifths of the English Expeditionary Army and a great part of the best mobile French troops will be destroyed or captured. The next blow is ready to strike, and we can execute it at a ratio of 2:1, which has hitherto never been granted to a German field commander..."
After the war, perhaps not surprisingly, German generals vociferously blamed Hitler for the British "miracle" at Dunkirk. Even von Rundstedt placed the whole debacle at Hitler’s feet. This has led to the many theories about why Hitler had "allowed" the BEF to escape:
He wanted to secure better peace terms with Britain and look like a magnanimous gentleman (rather than a psychotic despot).
He needed the help of the British in the coming struggle against Communism.
Hitler sought to avoid killing Anglo-Saxons, whom he believed were "superior" to his other enemies.
...
These are, of course all utter nonsense and have been dismissed by all credible historians. Sadly, they still seem to be regularly trotted out by assorted Hitler apologists like David Irving, despite all the surviving evidence that should have condemned them to the dustbin of history years ago.
Even after the "Stop Order" was issued to the army on 24 May, the Luftwaffe continued to attack the troops on the beach at Dunkirk. Whether this was to allow Goering's Luftwaffe the final "glory" of defeating the BEF remains just speculation.
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