Neither supposition really holds much water in light of the current research both on the social history of the Third Reich and its foreign policy agendas.

Of Haffner's two suppositions, Assertion A, has a touch of validity. Many within the NSDAP leadership regarded Kristallnacht of November 1938 as a failure of sorts. There were also internal metrics that showed a degree of widespread disapproval of the pogrom among the wider German population. However, this disgruntlement had less to do with sympathy for the Jewish victims and much more to do with the chaotic nature of Kristallnacht. many within the NSDAP state apparatus saw the massive property damage as counterproductive; in their mentality, Jewish property needed to be reclaimed by the Reich for redistribution back to the Aryan population. As Göring coldly put it in 12 November conference on the Jewish problem:

I would have liked it better if you had beaten two-hundred Jews to death and had not destroyed such assets.

This unregulated violence was anathema to the emerging Jewish specialists within the SS's RSHA who wanted an orderly emigration in which expropriated Jewish property would pay for emigration. Although violence helped encourage emigration, burning and looting denied Jews a means to leave the Reich. These wider concerns over property damage filtered into the larger German population and institutions as well. Insurance companies were initially in the dark about whom to pay for the damages, to which eventually Göring came up with the expedient solution of having the companies pay the state directly for the damages.

While it is true that there was a greater disappointment among NSDAP chiefs about the degree of apathy many Germans had in participating in National Socialist institutions, Kristallnacht was not really one of those times. Although SA bands and other state officials were responsible for some of the worst excesses, ordinary Germans participated in Kristallnacht in a variety of ways. Some of this was as direct participants in the violence, but others as bystanders. A number of accounts of Kristallnacht speak of German crowds watching the ritualized humiliation of Jews and vandalism of Jewish property. Far from being neutral, the act of being a bystander in this type of ethnic-based violence often acts to sanction it. It sends of sends a message to the victimized group that they no longer belong to the community and their neighbors tacitly sanction this violence. A number of Jewish accounts speak of the further erosion of neighborly connections and anomie post-pogrom. A year after Kristallnacht, the Jewish diarist Victor Klemperer tartly noted in his New Years' Eve entry that:

I believe the pogroms of November ’38 made less impression on the nation than cutting the bar of chocolate for Christmas.

Additionally, participation in violence as a bystander also drew in ordinary Germans as complicit what would later become the Holocaust. This was a type of negative integration in which the open and often not quite secret mass killings meant many Germans knew they were guilty by association. This helps explain the fatalistic determination to stick with the regime through the bitter end in 1945, even if Nazi crimes became relatively easy to pawn off onto NSDAP thugs like the SA or cronies like the SS postwar. In this sense, Kristallnacht was a prologue to much later mass murders by enmeshing Germans into webs of complicity and guilt.

Kristallnacht was also something of an embarrassment for Germany abroad at an acute time in geopolitical history, leading to Haffner's Assertion B. The reality of Hitler's foreign policy was that there really was not much a foreign policy there aside from a commitment to a Drang nach Osten. The ultimate desirability of a war with the USSR as well as colonization of this space by German settlers was one of the few consistent ideas in Hitler's foreign policy. The problem was nobody in the corridors of power in the West nor in Eastern Europe really desired a war. Anticommunism held only a very weak commonality among a number of European states, and anticommunism could seldom trump national interests. A good deal of the powers of southeastern Europe eyed each other with more suspicion than the USSR, a problem that came to the fore in Barbarossa among the "little" Axis powers. Polish engagement with the Third Reich was likewise fitful and suspicious, and, conversely, Hitler saw very little need for a viable Polish alliance and saw Polish land and its people in much the same terms as the that of the USSR.

There was a brief period in the mid-1930s when there was a German-Polish rapprochement on the basis of anticommunism. Germany and Poland signed a non-aggression pact in 1934 and there was some tentative military cooperation. But even the most stalwart Polish defenders of detente with German drew the line at making territorial concessions to Germany for the sake of an anti-Soviet crusade. Whatever the tractability of the Poles in anticommunism, the large German minorities in Posen and the Polish corridor were not going away. Additionally, most Polish leaders envisioned German-Polish cooperation taking place in a scenario where either the USSR attacked first or somehow fell apart. Neither contingency was really in the cards for the 1930s, and for Poles, as well as other potential allies of the Third Reich, an aggressive offensive against the USSR was too much of a leap in the dark.

The underlying problem was that for all of his claims of being a realist in foreign policy, Hitler's conceptualization of the world and geopolitics was ultimately simplistic and did not measure up to reality. He expected geopolitical turns of events to happen, and when they did not turn, it left German foreign policy out in the wind. This made German foreign policy more reactive and less predictable. The window for would-be alliances gradually disappeared and the only real option left for Germany was to rule from strength and bully their way to compliance with the new order. This made German hegemony even more unpopular during the war, even in areas not immediately under German occupation like Italy. Hitler never quite got the war he wanted in 1939, but he was arguably the sole leading statesman in Europe who was actively pushing for a war.

Sources

Longerich, Peter. Heinrich Himmler. Oxford [England]: Oxford University Press, 2012.

Mazower, Mark. Hitler's Empire: How the Nazis Ruled Europe. New York: Penguin Press, 2008.

Müller, Rolf-Dieter. Enemy in the East: Hitler's secret plans to invade the Soviet Union. London: I. B. Taurus, 2015.

Wildt, Michael. Hitler's Volksgemeinschaft and the Dynamics of Racial Exclusion: Violence against Jews in Provincial Germany, 1919-1939. New York: Berghahn Books, 2012.