Germany and other European governments have made clear they don't favor suspending the U.S.-EU trade talks which began last summer because both sides stand to gain so much through the proposed deal, especially against competition from China and other emerging markets.
Still, the Europeans have said they will insist that the trade agreement includes stronger rules for protecting data as a result of the NSA allegations. Data protection laws in Europe are generally stronger than in the United States.
"It's obvious to us that we have to and will bring our European convictions regarding data protection, and protection of privacy and business information, into these negotiations," Merkel's spokesman Steffen Seibert told reporters in Berlin on Monday.
The European Parliament's foreign affairs committee chairman, Elmar Brok, told reporters that failure to resolve the differences over data protection could threaten the trade talks. Brok, a member of Merkel's party who was in Washington to discuss the spy allegations, said the challenge was to strike a balance between security and personal freedom.
"We are fighting for the rights of our citizens," he said.
The steady drumbeat of reports stemming from documents provided to various media by NSA leaker Edward Snowden has created a sense of urgency among European governments that, at the very least, they need to be seen in the eyes of their citizens to be doing something to stop the spying.
At the same time, European leaders are anxious to avoid lasting damage in relations with their major ally. So far the issue has not hurt Obama politically within the United States because Republicans have blamed Snowden rather than the White House for the flap.
In the latest allegation, the Spanish newspaper El Mundo published a document it said showed the NSA had eavesdropped on more than 60 million phone calls in Spain between Dec. 10, 2012 and Jan. 8, 2013. The U.S. ambassador to Spain was summoned to the Foreign Ministry for an explanation.