Is it normal for professors to hold their graduate students "hostage?"
Pretty much everything is according to his/her will and they also get to determine if they want to "let their students graduate."


This is how it works in the U.S. also.  However, the proper behavior is for the supervisor to have a collaborative working relationship with PhD students.  I think Germany is similar.

In Australia, and I think Canada, the award of the PhD is decided by an external committee.  Members of the committee all work at other universities.  This substantially reduces the power of the supervisor.

Practices vary by region, and even among universities.  For example, some U.S. universities require a committee to approve the PhD thesis, with one member being from a different department.  At other U.S. universities the committee does not have this external member as a check.  Generally the committee does what the supervisor recommends.