US and Germany to hold talks over European NSA surveillance concerns

Germany and the US will begin talks as soon as Monday to address mounting European concerns over internet surveillance that are threatening to overshadow trade negotiations and damage Silicon Valley exports.

A German government spokesman, Steffen Seibert, said a working group of high-level US and German intelligence experts will begin "an immediate and intense discussion" over the issues of data protection and intelligence collection revealed by the National Security Agency whistleblower Edward Snowden.

This follows the clearest acknowledgement yet by the White House of how the affair is damaging transatlantic relations. In a phone call on Wednesday, President Barack Obama assured Angela Merkel, the German chancellor, "that the United States takes seriously the concerns" - despite his having previously dismissed the spying allegations as no different from activities undertaken by many other countries.

The European Commission also underlined the commercial threat to the US on Thursday by warning that European businesses are likely to abandon the services of American internet providers because of the NSA surveillance scandal. Neelie Kroes, the EC vice-president who speaks on digital affairs, predicted that providers of cloud services, which allow users to store and access data on remote servers, could suffer significant loss of business if clients fear the security of their material is under threat.

The French government called for a suspension of long-awaited talks on a new transatlantic free-trade pact, due to start on Monday, while the US explains its surveillance practices. European ambassadors eventually agreed to go ahead with negotiations in parallel.

France's top security official publicly admonished the United States at the American ambassador's 4 July garden party, denouncing alleged US "espionage" of France and other countries. Interior minister Manuel Valls was guest of honor at the fête, which was hosted by ambassador Charles Rivkin on Thursday. In a speech before hundreds of guests, he said that "in the name of our friendship, we owe each other honesty. We must say things clearly, directly, frankly".

Valls said that President François Hollande's demand for clear and precise explanations about reports of spying are justified because "such practices, if proven, do not have their place between allies and partners".

In the US, initial anger over domestic surveillance has been distracted in recent days by attempts to capture Snowden, but the forthcoming talks are likely to refocus attention on the White House.

James Clapper, the director of national intelligence, also faces the prospect of new congressional hearings to explain why he previously misled the Senate intelligence committee over the extent of data gathered on US citizens.

Obama has agreed to begin wide-ranging dialogue between the US and EU member states, involving the attorney general Eric Holder, to discuss "the collection and oversight of intelligence and questions of privacy and data protection". During Wednesday's telephone discussion with Merkel, Obama sought to reassure her that US surveillance services would provide the Europeans with details of the activities they had carried out. According to a German government spokesman, Merkel welcomed Washington's willingness to discuss details of the surveillance operations.

A White House spokesman said: "The two leaders reaffirmed the importance of continued close cooperation between our respective intelligence services in the fight against terrorism and other threats to the security of the United States, Germany, and our allies."

Merkel's management of the crisis has been widely criticised by both her coalition partners, the FDP and the Social Democrats. Both have accused the German chancellor of being too lenient towards the US authorities. The government has been forced on to the defensive, with interior minister Hans-Peter Friedrich insisting that contrary to opposition accusations, it knew nothing of the operations, and that it has so far found no concrete evidence that US agents operated on German soil.

The head of the Social Democrats, Sigmar Gabriel, called on Germany's justice system to intervene in the case of Snowden, suggesting German lawyers should travel to Moscow to interview him and if they found him credible, pave the way for Germany to give him shelter under a witness protection scheme. Snowden has applied for asylum in Germany, but his application has been rejected.

Gabriel joined the growing criticism of Merkel's government, and urged state prosecutors to launch a criminal investigation into the activities of the NSA. "I would consider it appropriate if the state prosecution were to pursue a case against those in a position of responsibility, against the American and British secret services," he said. The party's parliamentary head, Frank Walter Steinmeier, called on the US to halt its surveillance operations, saying they had "burst at the seams".

The spying scandal has provoked particular outrage in Germany, which is still haunted by memories of its years under Nazi and then Communist rule, when the population lived under the widespread espionage techniques of the Gestapo and Stasi. While many have pointed out the comparisons between those years and the NSA scandal are exaggerated, it has not stopped many commentators frequently drawing on the similarities between them.