I would blame Bismarck (the Iron Chancellor, that is). He believed, justifiably, that Germany is incapable of fielding a Navy on the same level as the British and decided to focus entirely on the European mainland over actually building a Navy. Hitler continued that policy. Then again, it wasn't like Germany needed a Navy up until they had to cross the English Channel, and the British Empire already had a head start on the Navy front so they might as well focus on interdiction (which the U-boats are very good at up until the Allied forces got the Enigma machine and started cracking Nazi codes) and aerial bombardment from airfields just across the English Channel (and let's not forget the rockets).
