Merkel frosty on the U.S. over 'unacceptable' spying allegations

By Luke Baker and Andreas Rinke BRUSSELS (Reuters) - German Chancellor Angela Merkel accused the United States of an unacceptable breach of trust on Thursday after allegations that the U.S. bugged her personal mobile phone, and she indicated data agreements with Washington may have to be revised. Arriving for a two-day summit in Brussels overshadowed by the allegations of eavesdropping by the U.S. National Security Agency against Italy, France and Germany, Merkel said she had told President Barack Obama in a telephone conversation late on Wednesday that the acts were unacceptable. "It's not just about me but about every German citizen. We need to have trust in our allies and partners, and this trust must now be established once again," she told reporters after arriving in a car with '007' in the numberplate. "I repeat that spying among friends is not at all acceptable against anyone, and that goes for every citizen in Germany." The stern words were her first public pronouncement after the German government said on Wednesday it had evidence the chancellor's mobile was "monitored" by the NSA. Germany's foreign minister summoned the U.S. ambassador to Berlin to discuss the issue, an event diplomats said was almost unprecedented in the past 60 years. White House spokesman Jay Carney said Obama had assured Merkel in their telephone call that the United States "is not monitoring and will not monitor" her communications, leaving open the possibility that it had happened in the past. The affair dredges up memories of eavesdropping by the Stasi secret police in the former East Germany, where Merkel grew up, and is an emotive topic for many Germans. Following the unceasing flow of leaks by former U.S. data analyst Edward Snowden, which has revealed the vast reach of the NSA's spy programs, Washington finds itself at odds with a host of important allies, from Brazil to Saudi Arabia. Britain's Guardian newspaper reported on Thursday that one NSA contact, a U.S. official, had provided the telephone numbers of 35 world leaders that had then been monitored. Germany's frustration follows outrage in France after Le Monde newspaper reported the NSA had collected tens of thousands of French phone records between December 2012 and January 2013, and an Italian news magazine reported on Thursday that the NSA had monitored sensitive Italian telecommunications. The revelations could have an impact on major legislative and trade initiatives between the United States and the European Union, with some German lawmakers saying negotiations over an EU-U.S. free-trade agreement should be suspended. Merkel, who has previously discussed a "no spying" agreement with the United States, hinted that data-sharing deals with Washington may need to be reexamined, a potentially damaging blow for U.S. efforts to collect counter-terrorism information. "To this end, we need to ask what we need, which data security agreements we need, what transparency we need between the United States of America and Europe," Merkel said. "We are allies facing challenges together. But such an alliance can only be built on the basis of trust." While Berlin and Paris are likely to find sympathy among the EU's 28 member states, domestic security issues are not a competence of the European Union. The best that may be hoped for is a public expression of support from leaders and calls for a full explanation from the United States. On their way into the summit, several European leaders did express their shock and surprise at the allegations. "This is serious," said Dutch Prime Minister Mark Rutte. "I will support (Merkel) completely in her complaint and say that this is not acceptable. I think we need all the facts on the table first." DATA PRIVACY RULES The most immediate impact of the furor could be to encourage member states to back tougher data privacy rules currently being drafted by the European Union. The European Parliament this week backed legislation that would greatly toughen EU data protection rules that date from 1995. The new rules would restrict how data collected in Europe by firms such as Google and Facebook is shared with non-EU countries, introduce the right of EU citizens to request that their digital traces be erased, and impose fines of 100 million euros ($138 million) or more on rule breakers. The United States is concerned that the regulations, if they enter into law, will raise the cost of handling data in Europe. Google, Yahoo!, Microsoft and others have lobbied hard against the proposals. Given the spying accusations, France and Germany - the two most influential countries in EU policy - may succeed in getting member states to push ahead on negotiations with the parliament to complete the data regulations and make them more rigid. For the United States, it could substantially change how data privacy rules are implemented globally. It may also complicate relations between the United States and the EU over an agreement to share a large amount of data collected via Swift, the international system used for transferring money electronically, which is based in Europe. Among the revelations from Snowden's leaks is that the United States may have violated the Swift agreement, accessing more data than it was allowed to. The European Parliament voted on Wednesday to suspend Swift, and the spying accusations may make EU member states support a firmer line, complicating the United States' ability to collect data it says is critical in combating terrorism. Despite the outrage in Paris and Berlin, the former head of France's secret services said the issue was being blown out of proportion and no one should be surprised by U.S. spying. "I'm bewildered by such worrying naiveté. You'd think the politicians don't read the reports they're sent - there shouldn't be any surprise," Bernard Squarcini told Le Figaro. "The agencies know perfectly well that every country, even when they cooperate on anti-terrorism, spies on its allies. The Americans spy on us on the commercial and industrial level like we spy on them, because it's in the national interest to defend our businesses. No one is fooled." (Additional reporting by Madeline Chambers and Noah Barkin in Berlin, Julien Ponthus, Robin Emmott and John O'Donnell in Brussels and Alexandria Sage in Paris; Editing by Will Waterman)