This time period represents the shift in thinking among the German naval staff from building a coastal defense navy to one that was more capable of "Blue water" operations. Up to this point the Germans had built ships intended only for local operations in the North Sea, Baltic, and Channel.
U-boats alone, or in combination with a handful of surface raiders is not a war winning combination. Instead, it is an admission that one's navy cannot compete with the enemy. By resorting to just a Guerre de Course campaign the Germans give up winning at sea. Their naval staff knew this and put their plan to build a full surface navy by 1944 in place as a result. Yes, this was overly optimistic in its goals but, it represents the only chance Germany has to win at sea.
Now, if the Germans had opted for just merchant raiding and coastal defense in 1934 and continued on that course with the intention of just harrassing England into a peace eventually it might have worked....so long as Hitler doesn't start a war with the Soviets. In this case, England doesn't have the means to win on land, the Germans cannot win at sea but they can make persuing a long war very costly to England by merchant raiding. Thus, there is the likelihood that England will eventually tire of fighting and negotiate an end to the war.
This might have been a realistic option and certainly less expensive than trying to build a new fleet for Germany.

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