Simply because your grandfather was able to read and write just fine dose not mean that every other German solider serving in WWII could as well. All that you say is true yet we also know that no nation has a 100% literacy rate. We also know that every nation has in times of need lowered its requirements in times of need.
Even in a tank one can be trained well enough to understand what needs to be done without having full literacy therefore I find the story told to Sailor Steve to be very plausible.
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