Mr Erdogan will arrive in Germany with a long wish-list. He would like to see Germany lift its veto on an expanded customs union between the EU and Turkey, to reassure investors, and to revive talks on visa-free travel to Europe for Turks.
Germany has a rather complex relationship with Turkey, going back to WWI and before.
In the 1960s, Germany recruited workers from Turkey. The assumption that they would earn money in Germany for a few years and then return was false; these days there is a strong Turkish minority in Germany, as well as German citizens of Turkish descent.
Some political groups in Germany are profoundly uneasy with the concept of a Turkish EU membership and any step in that direction, others are neutral or supportive (the latter group has diminished during the Erdogan government).
So it is not just the question of German (or dual) citizens who are arrested on what Germany sees as trumped-up charges. At the same time, Germany does not want any destabilization of Turkey, so they walk a tightrope.
Yet it seems clear to me that Turkey is walking back from the results of EU pre-accession talks, so a customs union would be difficult.
More or less for the same reasons that Trump slammed the Turkish economy (with tariffs): disapproval of the current Turkish approach to the rule of law, in particular as it applies to citizens of concern (Germans to Germany):
Merkel said on Aug. 29  that there would not be any progress with Turkey even in trade relations, if the rule of law was not guaranteed in the country. Good ties are “linked to respect for the rule of law and this is not guaranteed right now in Turkey,” she said.
Germany has issued new travel advice for its citizens and is blocking talks on expanding the EU Customs Union with Turkey. “I do not see a mandate to expand the Customs Union in the current circumstances,” Merkel said.
Merkel also reiterated Germany’s demand for Turkey to free journalists and rights workers from custody, including Die Welt daily correspondent Deniz Yücel.
“Our demand is very clear: That the people who have been arrested there are released,” she said. Yücel, a German-Turkish dual national, was arrested on Feb. 27 on charges of “making propaganda in support of a terrorist organization” and “inciting the public to violence,” after initially being detained on Feb. 14.
Yücel, who faces up to 10.5 years in jail if convicted, denies the charges.
The German government has demanded Yücel’s swift release, as well as the release of other German citizens detained in Turkey.
Granted, Merkel is broader her criticism/demands than just release of German citizens, but who knows what would happen (with the proposed expansion of the customs union) if these Germans were released....
According to a Carnegie analysis, reporting (but doubting) an EU assessment, the update would have been fairly beneficial to Turkey, economically (so consequently it's a leverage in realpolitik world):
The upgraded Customs Union is expected to extend coverage to the services and agricultural sectors as well as public procurement markets, and therefore it will likely have a more substantial and mutually beneficial welfare impact than the current arrangement. The impact assessment projected the expected gains to reach 5.4 billion euros ($6.3 billion) or about 0.01 percent of gross domestic product (GDP) for the EU and 12.5 billion euros ($14.6 billion) or 1.44 percent of GDP for Turkey.