In this day and age, almost any term for an ethnicity can be considered racist if it isn't the exactly right one which has been approved by the Powers That Be.
For example the word "black". They stopped using the word "blackboard" in schools because it is "racist". OK, they also stopped making them black, so the term became obsolete anyway, but the reason they say "chalkboard" instead is because some loony leftie or religious fascist decided "blackboard" is racist.
In one of the places where I work sometimes, there is a black guy serving in the canteen. Why could it be considered an insult to him to order a black coffee, but not if you order a white coffee from his white colleague?
Hipocrisy. Double standards.
If I had anything against a certain ethnic group, I might say so, or I might keep it to myself. But when I am talking about something else, like a cup of coffee or a writing board at school, I like to be able to use the word I want without being baselessly accused of racism. Luckily Germany isn't as bad for that kind of thing as the UK.
And people of different ethnic backgrounds are different and have different traits. There's nothing racist about making jokes about Irish, Jewish, black, Armenian etc., stereotypes. As long as they are realistic and not abusive.
Some of the racial stereotypes are negative, but it doesn't make you a racist to mention them. We Scots are often accused of miserliness. The Germans never get tired of mentioning this because they think it's funny. But they aren't racists because of it. They would be racists if they hated the Scots, but they don't because Scotland tends not to beat Germany at football much. (although they did send us that useless manager)
Racism is (or isn't) within a person, and can't be controlled by forbidding certain words. The litmus test is when you are confronted with a person of a different ethnic background, whether you treat them with the same respect you would treat your own countryman.
Or in other words: "would you mind if your daughter married one?"
That's how I see it anyway.