What should you do now?

Your answer to slow down and be ready to brake is correct according to German traffic rules. When encountering an oncoming vehicle in a narrow street, especially where parking on both sides limits available space, you must reduce your speed to maintain a safe lateral distance. This ensures you have enough time and space to react if the other driver makes an unexpected move. Maintaining your previous speed without adjustment can lead to dangerous situations due to reduced maneuvering room. The key rule here comes from §1 of the German Road Traffic Regulations (StVO), which requires all drivers to drive cautiously and adapt their behavior to the traffic situation, prioritizing safety and mutual consideration. By slowing down and being ready to brake, you help prevent collisions and ensure a safer passage for both vehicles.