I use newspapers. Sometimes I will put a kennel liner in there after the pups are a few days old and the bitch is not bleeding so much. But I have had a bitch get some serious gas from ripping up and injesting part of one prior to whelping, so sometimes I just go with newspapers.
GSDs can learn to walk on them, no problem. They are insulating and absorbent, and friends and relatives will give them away, so inexpensive.
Blankets and towels always run the risk of having a puppy get itself wrapped up, and then laid on by the bitch, stepped on by the bitch, etc.
Some people use wood chips, or straw.
Jenna, RN CGC & Babs, CD RA CGC HIC
Heidi, RA CGC
SG3 Odessa, SchH1, Kkl1, AD
Ninja, RN CGC & Milla, RN CGC
Joy, Star Puppy, RN CGC
Dolly CGC & Bear CGC