Beautiful pup! Looks a lot like our boy Cousteau.
We've experienced both sides of this issue, as embodied in two specific dogs. Our last GSD, Alex, was reactive throughout all his 13 1/2 years—not ever quite reliable around children and certain other dogs, though the main issue with the latter was actually with neighborhood dogs he knew well (suggesting, we thought, a territorial or dominance component). He was only ever leash-trained; we didn't have an Invisible Fence at the time or any sort of e-collar, so Alex essentially never walked off leash. It was all he knew.
The good news is that over time he DID get better, in some ways a lot better...we worked and worked on it, and I think he sort of grew through it as he aged, too. By four or five he was much more manageable, and we could read his body language and emotional state well enough to steer clear of conflicts. Usually.
The best technique for us was a "switch" of some kind, essentially a planned distraction at the moment when you see from his body language that he's reaching his threshold and is about to act. (I'll bet you're frightfully good at reading this...) We would always walk with a tennis ball in reserve, or a treat, or something else that was just interesting enough to short-circuit his reactivity. It did not work every time by a long shot, and we never really felt 100% at ease in potentially sketchy encounters, but it did work often enough that we saw progress and could enjoy walks with him. There were still times when we would just pull off the trail or road and put him in a Down until the "stimulus" passed. This was just how it had to be.
Some of the commenters mentioned the idea that leash reactivity is to some degree hard-wired. When Alex passed we took a break between dogs, grieving mostly, and then went looking for a breeder who focused on temperament. We found a great one (Steinigbergen in Pierce, Colorado) and wound up with a very even-tempered, sweet dog who truly shows no aggression toward any other being. That doesn't help you with your current challenges, I realize, but I want to say that although he's a sweetheart, even Cousteau has his own type of reactivity. He will rush a strange dog to invite play, but he isn't that smart (at 3) at reading other dogs' refusal to play. That can be dangerous too. So while I think a sweet-tempered dog makes things easier, it's not because they aren't reactive at all.
With regard to our two dogs, a key difference that I need to point out—because perhaps it's helpful to you in considering training options—is that we do now have an Invisible Fence and we trained Cousteau with an e-collar, which 90% of the time we use on vibrate mode, as a "Hey, remember me?" nudge. He's a smarty, like most GSDs, and we rarely need to use the shock setting. I know there are passionate debates about these devices, but for purposes of your situation I will only say that with regard to leash behavior, I find them to be a double-edged sword. On the one hand, I believe that Cousteau's greater freedom to move about his world off leash makes him a calmer and more confident dog, which helps him stay calm around other dogs. Perhaps his predecessor, Alex, would have done better given a similar setup; we'll never know. On the other side, though, Cousteau is not very used to walking on leash (our bad...), which means that when he HAS to walk on leash he sometimes looks like a beginner (by which I mean, we look like beginners). Now that we want to get him trained and certified as a therapy dog, this is an issue. We are back to basics on leash training, somewhat, but that's ok. We will get there.
Anyway, I do think it would be worth it for you to weigh the pros and cons of e-collars if you haven't already ruled them out (a decision I can certainly respect, even if we made a different one in moving from Alex to Cousteau). They might help you manage this, if properly used, and
if you and your dog are properly trained. There is certainly plenty to read about this option on this forum and elsewhere, and a lot of it gets heated. But it can't hurt to look into it and draw your own conclusions. No training method is perfect for every dog—or every owner—and though we feel that the collars are good for our specific dog on balance, we see flaws in them too. I only mention the idea in case it's an avenue you haven't pursued. They can get results in situations that prove intractable to other training methods. A neighbor of ours with an extremely leash-reactive dog had very, very quick results with an e-collar. It's a joy to see them walking in the neighborhood now. Her dog Sadie isn't perfect, but she is so, so much better! Instead of walking her only at 5 AM to minimize the chance of encounters with other dogs, our neighbor can now walk her anytime she wants to. That alone is an achievement for them both.
Best of luck with this—and sincerest sympathy for the stress this causes. I've been there. It's no fun. But don't give up on your pup, or on the prospect of low-key, companionable walks together. I'm pulling for you both.
