When I was young we always referred to ourselves as being German because my Dad's family spoke the German language in their home. It never did enter my mind that we should refer to ourselves as Russian or French. Yet my Dad, his father and grandfather were all born in South Russia (now Ukraine). Their ancestors came from Alsace (now France). Alsace was part of the Holy Roman Empire until 1648, was added to France in 1697, and became part of Germany in 1871 when several German-speaking states joined to form the German Empire. This was long after Engelhard Merck had left to help settle the village of Elsass in South Russia. Engelhard was born in Alsace, as was his father and grandfather, in German-speaking communities.
I have also wondered why we say we're German...my theory is that as Germans from Alsace, we were accustomed to asserting our cultural identity. Many Alsacians identify as either German or French, depending on their language, mostly. Those who identify as Alsacian are another group entirely.
Our family maintained their German language and identity through three generations in Russia! It ended with my grandmother, who learned English when she reached America and refused to speak German to her children.