Continental Europeans never really had the kind of handgun epiphany experiences with extremely hostile natives that the Americans and British had, so never really devloped much of an affinity for handguns firing large caliber bullets.
If you look at Europe in the black powder age, you had large caliber handguns, but as we entered the smokeless age, virtually every continental nation started dropping back in caliber fairly quickly. Often this included a drop in power, as well, but not always.
The French, for example, went from their Mle 1873 11mm Ordnance round to the 8mm Lebel round.
The Germans went from the 11mm Mauser Commission revolver round to the 9mm. Lost diameter and bullet weight, but gained energy.
The British stayed with large-caliber rounds, all roughly .45 caliber, while the Americans went from .45 to .38 and then after the Philippines experiences, went back to .45.
The British particularly found large caliber handguns to be desirable when fighting native warriors such as the Dervishes or the Dinka.
Continental Europeans also tended to view the handgun more as a badge of rank and much less as a fighting weapon than either the British or especially the Americans. As such, one attraction to smaller calibers was a smaller, lighter gun hanging from your Sam Brown, or Horst Wessel, belt.
The MAIN reason, though, why you see so many German .32s from the WW II period?
Germany needed every handgun it could get, and often impressed handguns from other nations to fulfill the needs that couldn't be met by home industry.
Primarily handguns in .32, .380, and 9mm were impressed into service, but other, odder calibers, such as the French 8mm Lebel and MAS .32 Long were also issued for use by troops stationed in those nations where addressing supply issues wouldn't be as hard.