What is the right course of action?

Your answer is fully correct.

According to German traffic rules, when vehicles approach an intersection without traffic lights or right-of-way signs, the vehicle on the right has the right of way. In this situation, you must yield to the red car on your right. This is why you have to allow the red car to go first.

At the same time, you have right of way over the blue car coming from your left. The blue car must wait because it is on your left, and vehicles on the right have priority over those on the left.

This rule is the basic "priority to the right" principle used in Germany at uncontrolled intersections. It helps to determine right of way fairly and avoid accidents in situations like this.