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U.S. Struggles to Mend German Relations After Spy Expelled

July 11 (Bloomberg) -- Asia Society Senior Fellow Jamie Metzl weighs in on cyber spying on “Bloomberg Surveillance.” (Source: Bloomberg)

President Barack Obama’s administration lavished praise on its partnership with Germany while sidestepping specifics of espionage allegations that led to the expulsion of the top American intelligence officer in Berlin.

“We’re in touch because we recognize the value and the strong partnership that exists between the United States and Germany,” White House press secretary Josh Earnest told reporters yesterday.

The administration must move quickly beyond such reassuring words to avoid damaging trans-Atlantic trade talks, business deals and national-security priorities, including talks on Iran’s nuclear program and sanctions against Russia for its role in Ukraine, according to foreign-policy specialists.

“There are high stakes,” Jeffrey Anderson, head of a German-European studies center at Georgetown University in Washington, said in an interview. “There are plenty of areas where we need to work with the Germans, or where we can, and all this is getting sidetracked.” The damage is potentially long-term, Anderson said. “It’s implanted seeds of mistrust, disappointment and betrayal that are going to take a long time to uproot.”

The efforts may intensify within days. Secretary of State John Kerry may meet his German counterpart, Frank-Walter Steinmeier, at talks in Vienna on curbing Iran’s nuclear ambitions.

Photographer: John Thys/AFP via Getty Images

Secretary of State John Kerry, right, may meet his German counterpart, Frank-Walter Steinmeier, left, at talks in Vienna on curbing Iran’s nuclear ambitions. Close

Secretary of State John Kerry, right, may meet his German counterpart, Frank-Walter... Read More

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Photographer: John Thys/AFP via Getty Images

Secretary of State John Kerry, right, may meet his German counterpart, Frank-Walter Steinmeier, left, at talks in Vienna on curbing Iran’s nuclear ambitions.

“I would expect that Secretary Kerry and Foreign Minister Steinmeier will have an opportunity to speak sometime in the coming days, and I would just reiterate that our relationship with Germany is extremely important,” State Department spokeswoman Jen Psaki told reporters in Washington yesterday. “We have many areas we work together on.”

Snowden’s Disclosures

Germany’s decision to oust a U.S. intelligence official after the discovery of two alleged double agents spying for Washington reflects frustration that has been building since former National Security Agency contractor Edward Snowden revealed extensive classified files on surveillance activities in the U.S. and abroad. Among the disclosures was the alleged hacking of German Chancellor Angela Merkel’s mobile phone.

The anger in Germany is being fed by domestic politics, cultural differences, dashed hopes that Obama’s election would change relations, and the long reach of history, which has given Germans dark memories of government surveillance.

With the world’s fourth largest economy generating a $3.6 trillion gross domestic product last year, according to the World Bank, Germany is also a crucial economic partner.

U.S.-German Trade

The latest revelations have “pretty major implications” for trans-Atlantic business relations, said Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington.

The U.S. imported about $114 billion in goods from Germany in 2013, according to U.S. Commerce Department data. “U.S. business is very concerned,” Hufbauer said.

The tensions are spilling over into plans to upgrade the German military’s drones, according to lawmakers who sit on parliament’s Defense Committee. They said the espionage activities fueled German concerns over “black box” modules in MQ-9 Reaper drones from U.S. bidder General Atomics based in San Diego.

Christopher Ames of General Atomics said in an e-mailed statement that surveillance information captured by its drones would remain the exclusive property of the German government.

The impact has already been felt by Verizon Communications Inc. (VZ) In June, the German government said it would end a long-standing contract with the New York-based company because of concerns about network security after the Snowden disclosures.

Trade Talks

Annette Heuser, executive director of the Bertelsmann Foundation in Washington, a nonprofit group that promotes cooperation, said the latest news could hurt the Trans-Atlantic Trade and Investment Partnership, a proposed trade deal between the U.S. and the 28-nation European Union.

It’s “a bad sign for the TTIP negotiations,” she said in a phone interview from Frankfurt. While the spying incident probably won’t derail the talks, it will almost certainly slow them down, she said.

“The saving grace on any of this is that TTIP is moving quite slowly,” said Hufbauer of the Peterson Institute. It’s possible that by 2015 or 2016, when the talks become more active, “this will be behind us, this intelligence flap.”

Still, the Obama administration will have to move quickly to make amends, said Morton Halperin, a former U.S. National Security Council official.

‘Broader Commitment’

“We’re going to have to find a way to make a broader commitment about both electronic surveillance of German officials and trying to recruit agents in the German government,” said Halperin, a senior adviser at the Open Society Foundation, a democracy promotion group in Washington.

In foreign policy, Germany is the most influential player in persuading its fellow EU countries to enforce tougher sanctions on Russia for its interference in Ukraine. The U.S. also looks to Germany as a leading partner on Iran and to confront Chinese espionage.

“We’ve lost leverage on these discussions because the Germans are mad at us,” said James Lewis, a former diplomat and specialist in espionage technology now at the Center for Strategic and International Studies, a Washington policy group.

Privacy Protections

In January, Obama tried to address concerns on both sides of the Atlantic by directing U.S. spy agencies to stop monitoring friendly international leaders, in part to placate German anger over the monitoring of Merkel’s phone calls. Obama also called for extending privacy protections to foreign citizens whose communications are vacuumed up by NSA surveillance.

German officials had asked for their citizens to get the same privacy protections Americans do.

Efforts to come to some agreement on that have stalled, said Fran Burwell, director of Transatlantic Relations and Studies at the Atlantic Council, a Washington policy group. That is feeding anger and a growing anti-Americanism, Burwell said.

“I have yet to meet someone in Germany’s foreign policy establishment who says, ‘Oh, this is going to blow over’” she said. “This has touched a particular nerve.”

Obama was initially “considered a savior of the trans-Atlantic relationship,” said Anderson of Georgetown University. A German sense of betrayal has been deepened by “what’s seen as American indifference to concerns about the problem,” he said.

Political Pressure

Merkel is under domestic political pressure to show she’s taking strong steps to deal with the situation.

The continuing revelations provide left-leaning opposition parties with fodder for a “constant barrage of questions, debates, inquiries” that politicians in Merkel’s ruling coalition are “having a hard time dealing with,” Anderson said. “They’re looking to the U.S. for some help in dealing with this problem, and they’re not getting it.”

A conversation between the U.S. and Germany is being led on the American side by White House counselor John Podesta, according to Halperin of the Open Society Institute.

“He’s a privacy person as well as taking security issues seriously,” Halperin said. “That could lead to a good outcome.”

In the meantime, Berlin’s very public expulsion of the U.S. diplomat sends an unmistakable signal about German frustration, said Lewis, who met July 9 with members of the German parliament’s foreign affairs committee in Washington.

“I think we’ll be partners again,” Lewis said, “The question is whether it will take a year to repair the relationship or ten years.”

To contact the reporters on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net; Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net Larry Liebert, Justin Blum

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