The guest house is morally wrong to act in this way, I would advice you to not pay them. They may also be in violation of certain EU laws by intimidating you to pay. They can argue all they want about your legal duty to pay, but the reality is that with Oktoberfest about to start, they have already reserved your room to someone else, likely for a larger fee than the amount you originally booked it for. If the guest house persists in making legal threats, an effective way to put a stop to that is to call them and say that if they don't drop the case, you'll write your account of the situation on social media. Negative publicity is extremely costly to companies, especially small guest houses that depend a lot on booking.com for their visibility.
You can safely get away with not paying, as they are unable to charge your debit card and 11 days is long enough to make their demands unreasonable. You can consider transferring funds from that debit card to another one to make sure they can't get the money even if they do get the ability to charge the debit card. But I wouldn't worry about this.
Legally, the situation isn't entirely clear, because in Europe, companies do not have the right to just point to the small print to get their way. Whatever is written in the small print has to be consistent with EU customer protection laws in order to be valid, going after people because of cancellations isn't allowed. In fact, if you had made a prepayment you could have demanded your money back (within the limitations of the law), regardless of the guest house's own rules on this.
The only thing you must be aware of is that companies can sometimes intimidate customers to pay by outsourcing the collection of outstanding bills to special debt collection companies that pretend to have legal rights to go after customers. In fact, in Europe they don't have any legal rights to force you to pay. They may send you bills for the requested payment plus a large sum for extra administrative costs. But you are not required to pay any such bills.
To force you to pay, the company needs to get a court order and that court order can only be executed by a court bailiff, not by a private entity. But to get such a court order, the company, which by that stage will typically be a debt collection company, needs to prove that the legal conditions are met, i.e. that you were aware of the relevant details in the contract, and the contract is legally valid under EU customer protection laws. Obviously, they are not going to be able to do that.
To avoid such problems in the future, it is better to book a decent hotel instead of a guest house. The small guest houses may be in a financially more precarious situation, making them hunt for every penny they can find. Reputable hotels don't treat customers this way. Many hotels have the policy that guests who were not satisfied with their stay don't have to pay, but of course, you must then make your complaints clear during the stay. This is the right attitude; they provide a services and go out of their way to satisfy the customer. The way the guest house is acting here, threating you with legal action, is the opposite of this, I would not want to stay in such a place.