Germany's interpretation of "free speech" is not as black and white as the US's. It is not an end unto itself, as we see it here, but is instead a priority to be balanced against other priorities, and for good reason.

I am not German, but I do know many Germans, and from what I have learned there seems to be a collective consciousness - unique, as far as a I can tell, of any country that has committed genocide - that the German people are capable of atrocities, as evidenced by the two world wars and the holocaust. The logic continues that Germany, the entire country, needs to be cognizant of this dark demon hiding in its closet that can come out, because only by knowing that this thing exists there can they seek to restrain it. The best way to restrain that demon is to restrain German expansionism via multilateralism and the EU, abandoning the German empire, and suppressing things like Nazism and Aryanism and other things which give that demon free access to their society.

I will add that the German emphasis on shackling itself so that it can't commit more evil is extremely influential in their support for the EU post-WWII. Their enthusiasm for the entire EU project is not economics, but is instead politics (or, at least, used to be). Only by participating as part of an EU coalition can Germany now pursue foreign policy goals without being judged as Nazi imperialists (Greek protest posters withstanding). Don't forget that the basis of the EU was a steel-sharing agreement between Germany and France, an agreement intended to assuage the fears of warmongers in both countries about a "steel race" that might lead to strategic imbalance inside Europe. A very, very large influence on why the EU exists at all is Germany's fear that it might conquer Europe again. Numerous German politicians have been unequivocal in that argument. Germany's demon needs containing.

Given that context, America's emphasis on free speech as a universal doesn't really make sense. Free speech, if freely allowed in Germany, gives the German demon the freedom to come out. Germany's overarching goal is to suppress that demon, and if that means suppressing the freedom of speech of a few neo-nazi idiots, then pragmatism wins and they don't give a fuck. The bigger priority wins.

I do not think we can blame them for that line of reasoning. America's logic is not universally applicable to every circumstance.