I wonder whether this is mostly about some management power struggle.
I think it's also possible leadership wants to indicate to long-term googlers that their jobs are not safe as a way to motivate their replacements. You end up with a certain amount of complacency after a decade at google.
Which, according to Google Search, seems to be the case – with typical software engineer salaries coming in at half of what US developers realize. But perhaps your first-hand experience sees something different?
EDIT: I should be explicit about my conclusion. Munich is cheaper than some places, but that doesn't make it the kind of place you choose if you're looking to move to if your want avoid experience developers.
They want to avoid expensive developers, not experienced developers. There is no reason to think the new German team is lacking in any way, but they are almost certainly willing to work for a fraction of the price of a comparable developer stateside. There isn't the same kind of demand for them as compared to the US in order to juice salaries. Like was said earlier, you can hire a German developer all in for somewhere around €100k. That's nothing compared to what Google is accostomed to paying.
It is true that the there are even weaker markets out there, but they come with other costs, like cultural barriers, that start to negate the difference. Germany hits the sweet spot of developers coming cheap, and still being experienced and talented on the same level Google is accustomed to, all while sharing an American-like culture.
Labour costs are almost the entirety of the cost of developing software. The cost of existing in the city is effectively irrelevant. Munich being expensive doesn't matter.