U.S. Offered Berlin 'Five Eyes' Pact. Merkel Was Done With It

July 14 (Bloomberg) -- Bloomberg’s Hans Nichols examines relations between the United States and Germany in light of recent spying allegations and talk in German media of Chancellor Angela Merkel possibly stepping down early before her term is complete. He speaks on “Bloomberg Surveillance.”

U.S. Ambassador John Emerson made his way to the Foreign Ministry in Berlin armed with a plan to head off the worst diplomatic clash of Angela Merkel’s chancellorship.

Emerson came to the July 9 meeting with an offer authorized in Washington: provide Germany a U.S. intelligence-sharing agreement resembling one available only to four other nations. The goal was to assuage Merkel and prevent the expulsion of the Central Intelligence Agency’s chief of station in Berlin.

It wasn’t enough.

The same morning, across the boundary once marked by the Berlin Wall, Merkel convened her top ministers following the 9:30 a.m. Cabinet meeting on the sixth floor of the Chancellery and resolved to ask the U.S. intelligence chief to leave German soil.

Merkel, who ultimately determined the government’s course, had to act. Public and political pressure after more than a year of accusations of American espionage overreach, stoked by indignation at the lack of a sufficient response from Washington, had left the German government with no alternative.

“We don’t live in the Cold War anymore, where everybody probably mistrusted everybody else,” Merkel, who has previously reserved her Cold War-mentality accusations for Russian President Vladimir Putin, said in an interview with German broadcaster ZDF today.

Photographer: Michael Gottschalk/Photothek via Getty Images

German Chancellor Angela Merkel attends a press confence with the Prime Ministers of East-German States on July 9, 2014 in Berlin. Close

German Chancellor Angela Merkel attends a press confence with the Prime Ministers of... Read More

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Photographer: Michael Gottschalk/Photothek via Getty Images

German Chancellor Angela Merkel attends a press confence with the Prime Ministers of East-German States on July 9, 2014 in Berlin.

No Trust

The spying scandal has blown open a rift between the U.S. and Germany, a nation once under American tutelage in the decades after World War II. The latest allegations, involving U.S. double agents, rekindled anger over the disclosure last year that Merkel’s mobile phone had been hacked by the U.S.

“The notion that you always have to ask yourself in close cooperation whether the one sitting across from you could be working for the others -– that’s not a basis for trust,” Merkel told ZDF. “So we obviously have different perceptions and we have to discuss that intensively.”

Merkel also signaled displeasure with U.S. spying at a news conference in Berlin on July 10. Within an hour, her office issued a statement saying that the two new investigations into U.S. cloak-and-dagger methods, on top of “questions over the past months” following leaks on National Security Agency activity, forced the government to take action.

Invited to Leave

At that point, the U.S. intelligence officer was invited to leave the country rather than suffer the diplomatic ignominy of being declared “persona non grata” and expelled under the Vienna Convention. Merkel’s spokesman, Steffen Seibert, said yesterday that the government expected the unidentified official to leave the country “soon.”

Photographer: Thomas Trutschel/Photothek via Getty Images

U.S. Ambassador to Germany John Emerson. Close

U.S. Ambassador to Germany John Emerson.

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Photographer: Thomas Trutschel/Photothek via Getty Images

U.S. Ambassador to Germany John Emerson.

The eviction was “a necessary step and a measured response to the breach of trust that took place,” German Foreign Minister Frank-Walter Steinmeier told reporters yesterday. He’ll meet U.S. Secretary of State John Kerry in Vienna tomorrow to discuss the matter on the sidelines of talks on Iran’s nuclear program.

The onus is on the U.S. to suggest solutions, and German officials are waiting to hear what Kerry will propose, according to a German diplomat who asked not to be identified discussing the conflict.

The revelations at once disrupt the U.S. security relationship with a core European ally and expose German anxiety over the balance to strike between privacy issues and combating terrorism. Hamburg was home to three of the Sept. 11, 2001, suicide pilots.

CIA Chief

In addition to Ambassador Emerson’s efforts, CIA Director John Brennan contacted Germany’s intelligence chief this week, before the CIA official was asked to leave, and offered to visit Berlin to help resolve the dispute, according to the German diplomat.

Brennan’s offer was perceived in Berlin as too little, too late, and Germany hasn’t responded to it, the diplomat said. The government doesn’t want a visit limited to symbolism and private consultations with intelligence officials, the diplomat said, and would want Brennan to bring concrete proposals and speak with lawmakers and the media.

Emerson, who was president of an investment-management firm after serving in President Bill Clinton’s administration, made a previous visit to the Foreign Ministry -- on the Fourth of July -- at the request of the German government.

Ambassador’s Offer

Deputy Foreign Minister Stephan Steinlein sought a “swift clarification” over a Federal Prosecutor investigation into an employee of Germany’s foreign-intelligence service, or BND, suspected of passing information to American agents.

The 31-year-old mid-level employee had spirited away 218 top-secret files, most of which were printed out and scanned and contained in five cardboard file folders, and handed them over to a contact over a two-year period, German lawmakers overseeing intelligence have said.

Emerson, who requested the July 9 meeting, delivered an offer from President Barack Obama’s administration for an arrangement resembling the Cold War intelligence-sharing agreement among the countries known as the “Five Eyes” -- the U.S., U.K., Canada, Australia and New Zealand, according to a U.S. official who asked not to be identified discussing the private negotiations.

Intelligence Sharing

The arrangement, initiated in 1946 between the U.S. and U.K., calls for the U.S. and the other English-speaking countries to share most of the electronic intercepts and some of the other intelligence they collect, with the understanding that they will limit their spying on one another.

“We are not currently looking to alter the Five Eyes structure,” said Caitlin Hayden, a spokeswoman for the White House’s National Security Council, in an e-mailed statement. “But we remain open to discussions with our close allies and partners, including Germany, about how we can better coordinate our intelligence efforts.”

Postwar Germany has had a more modest intelligence establishment than the U.S. or U.K., focused largely on the former East Germany and Soviet Union and on terrorist groups. German officials balked at expanding their collection and sharing under such an unwritten arrangement, according to the U.S. official.

The allegations of snooping have particular resonance for Merkel, who lived for 35 years in communist East Germany and who, as the daughter of a Protestant pastor, endured special scrutiny from the state-security service, the Stasi.

Big ’If’

While German-U.S. relations dipped during the 2003 Iraq war when Merkel’s predecessor, Gerhard Schroeder, refused to join President George W. Bush’s coalition against Saddam Hussein, ties improved under Merkel. She was awarded the Presidential Medal of Freedom by Obama in 2011.

White House spokesman Josh Earnest declined to comment on the details of the allegations, telling reporters at the beginning of the week that accusations over spying were subject to a “a big ‘if’.”

“We highly value the close working relationship we have with the Germans on a wide range of issues,” Earnest said, “but particularly on security and intelligence matters.”

U.S. lawmakers, including some frequently critical of Obama, have been similarly reticent.

Lawmakers’ Concerns

“I don’t know how much the administration could have done to defuse this,” Representative Ed Royce, the California Republican who heads the House Foreign Affairs Committee, said yesterday at a breakfast with reporters hosted by the Christian Science Monitor. “Given the circumstances, the administration is attempting at this time to deal with the German government, and I’m hopeful that they’re successful.”

Senator Mark Udall, a Colorado Democrat and Intelligence Committee member, has told reporters that he was eager to learn more about the situation at a classified briefing for the panel members next week.

“I am concerned that we’re sending the wrong message to a key ally,” Udall said.

Before the current tensions, the U.S. and Germany had a history of extensive intelligence cooperation. For many years, much of U.S. electronic spying on Iran was conducted out of a CIA station in Frankfurt known as Tefran, according to a former U.S. intelligence official who described the cooperation on condition of anonymity.

Review Agreements

A number of people in the U.S. government say that, more than two decades after the Cold War ended, it’s time to consider agreements with more countries to help track terrorists, weapons proliferation and espionage, according to U.S. officials who asked not to be identified.

They said the conflict with Germany also has underscored concern that intelligence agencies lack any good risk-assessment model to judge the benefits of operations against friendly powers against the potential risks.

“This is so stupid,” German Finance Minister Wolfgang Schaeuble, Germany’s longest-serving lawmaker, said July 9, reflecting frustration and amazement about the turn of events in U.S.-German relations.

Schaeuble, who helped negotiate German reunification 25 years ago this year, said, “It makes you want to cry.”

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; John Walcott in Washington at jwalcott9@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net; Craig Gordon at cgordon39@bloomberg.net Tony Czuczka, Heather Langan

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