What is the right course of action?

Your choice (1: “I allow the blue car to turn”) is correct because in this situation the blue car is coming from your right at an uncontrolled intersection. In Germany, when there are no priority signs or traffic lights, the basic rule is “right before left” (rechts vor links). That means you must yield to all traffic approaching from the right.

The motorcycle does not come from your right; it approaches from the left. So the motorcycle must yield to you (and also to the blue car, because the blue car is to its right). As a result, the order is: first the blue car, then you, then the motorcycle.

Rule of thumb for similar questions: If you see no signs/lights, quickly check who is on your right. Whoever is on your right has priority, even if they are turning.