This definitely is descending from the ancient Greek tradition. You should consider the following:
The Germans claimed that they are heirs to the European ancestry and as such their art should resemble and surpass the art of ancient epochs. As the ancient Greek and Roman art were considered the highest examples of art, the Germans tried to simulate them.
Note that this antique tradition can be seen in Soviet art as well, for example in a sculture "Let Us Beat Swords into Plowshares" although the genital seems to be hidden here, which can be explained with Russian national tradition.
There was a serious emphasis on bodily strength and reproduction in Nazi ideology.
There was more tolerance to erotic art in Germany as elsewhere in the West compared to the USSR due to market demand for eroticism. If you check both German and American films of the time you will easily find a lot of erotic scenes (even outside of any political context) which would be impossible in the USSR. By contrast in the USSR all the art was considered to be an educational tool and as such could not include anything not deemed educationally positive. This included eroticism which could give rise to things not projected to exist in a future society, such as prostitution which was claimed to be eradicated. By contrast, prostitution was allowed in Germany.
GERMANY'S NAKED TRUTH German socialists saw nudism as a weapon of class struggle. George Hull investigates how nudist movements grew out of the crowded, dirty cities of the late 19th century before being co-opted by the Nazis in their quest for racial purity