Soak bread crumbs in milk until softened. Add onion to 1 Tbsp butter in small saucepan and cook slowly over low heat to prevent burning butter for 3 minutes. Mix softened bread, cooked onion and meat. Add eggs, salt, pepper, nutmeg and paprika. Mix thoroughly but do not overmix, Shape meat into small balls, dusting the hands with flour while shaping the balls.
Melt remaining 3 tablespoons butter in large frying pan. Working in batches if necessary, add meat balls and fry until golden brown all over. Remove from pan with slotted spoon. Stir in meat extract and 3 tablespoons flour. Stir until well blended. A whisk is good for this. Add water, and a few grains of pepper. Cook, stirring constantly until thickened.