How the global spy game is changing

Revelations of US spying on European allies have hurt America's image abroad but won't irreparably damage transatlantic cooperation on intelligence gathering. Here's why.

Cover Story

Former Secretary of State Madeleine Albright recalls a French diplomat once querying her at the United Nations in New York about her position on an issue. It wasn't just the usual hallway chitchat. He wanted to know why she had a particular point of view that, as it turned out, she had only communicated to a very few other US officials.

"I said, 'Excuse me?' " Secretary Albright told a Washington audience recently amid a burgeoning transatlantic uproar over revelations of extensive American spying on Europeans and their leaders. "They had an intercept of something," added Albright, who was US ambassador to the UN and secretary of State under President Clinton, "so it isn't exactly as if this is new."

As National Security Agency (NSA) leaker Edward Snowden continues to dribble out documents detailing the scope of American intelligence gathering, some analysts sigh and remind the world that if spying is the second-oldest profession, then spying on friends is at least as old as the Bible.

In just the few months since Mr. Snowden began divulging his purloined NSA documents, it has become a cliché for US spymasters and analysts alike to cite the famous line from the movie "Casablanca" that has Captain Renault "shocked, shocked to find gambling going on" in Rick's Café. Director of National Intelligence James Clapper couldn't resist when he appeared before the House Intelligence Committee last month, paraphrasing the iconic quote as "My God, there's gambling going on here," before adding that the brouhaha over spying among friends was "the same sort of thing."

Even as revelations of a decade of US intercepts on the cellphone communications of German Chancellor Angela Merkel roiled US-German relations, some leaders took Albright's "so what's new?" approach and warned against losing sight of why allies share intelligence and of who their common enemies are.

Former German Chancellor Helmut Schmidt, who held Germany's top office in the critical cold-war years from 1974 to 1982, told the German weekly Die Zeit that he had just assumed that all of his phone calls were intercepted. Adding that he was certain Ms. Merkel's private communications were similarly tapped, he said his advice to Merkel was "to remain calm."

But the revelations of NSA spying on America's friends have touched off a row from Berlin to Brasília – while providing a welcome distraction for Beijing, which earlier this year was the focal point of international ire over cyber-espionage. A key reason, analysts on both sides of the Atlantic say, is that the US espionage enterprise revealed by the Snowden leaks – and global eavesdropping and information-gathering capabilities generally – have advanced far beyond what leaders like Mr. Schmidt and Albright had to contend with when they were in government.

Espionage, especially spying on friends, has always involved a cost-benefit calculation – weighing the benefits of eavesdropping against the costs of being found out. But the expansion in sheer information gathering and storage capabilities since the 9/11 terrorist attacks has swamped any efforts to set limits and the proclivity to weigh the pros and cons, analysts say.

And the downsides of that, they add, could be many and even lead to a damaging of the counterterrorism efforts that lie at the core of international intelligence cooperation.

"The surprise was not that everybody spies on everybody else. The surprise has been in the scope and the almost compulsive, nonstrategic nature of what the US has been doing," says Stephen Walt, a professor of international affairs at Harvard University's Kennedy School of Government in Cambridge, Mass.

Typically a "cost-benefit analysis" would ask "if the benefits are worth the potential diplomatic fallout if what we are doing is discovered," Mr. Walt says. But he adds that in the "vacuuming up, 24/7, of whatever they thought they might have some use for," the NSA "appears not to have asked the question and to have completely ignored the potential costs."

Damage from the Merkel cellphone-tapping revelation can already be seen in left-wing German politicians rushing to meet with Snowden in Russia, where he has asylum, to seek whatever other information he might have on US spying in Germany. Some Germans are even pressing for Snowden, a wanted man in the United States, to be brought to Berlin to reveal more about the NSA enterprise.

But repercussions from the exposure of NSA programs are likely to ripple well beyond Berlin, affecting everything from other countries' cooperation with the US on intelligence gathering to America's image abroad.

"This is a PR disaster that gives the wrong impression of the US to the publics of these [European] countries," says Jonathan Laurence, a political scientist at Boston College specializing in US-German relations. "Counterterrorism sharing has all along been very good, but this won't make it any easier for leaders in these countries to publicly cooperate with the US when it is widely seen as arrogant."

Also disconcerting is how the US has seen its standing as an advocate of Internet freedom seriously compromised. In Walt's view, the revelations of massive NSA sweeps of Web communications have ended up "leading people to think we want an open Internet so we can exploit it."

Perhaps even more damaging is how the Snowden leaks may contribute to a broader perception of the US as a "paranoid hegemon that doesn't know when to quit," Walt says. "What others see as a result of all this is that the most secure country on earth continues to pursue every advantage and implementation of every technological innovation in ways the rest of the world has to worry about."

•   •   •

Europeans are not just reacting to the spying imbroglio as Europeans, of course, but also in ways reflecting their own country's history and relations with the US. Their response is also shaped by domestic perceptions of the role of intelligence gathering and by privacy concerns.

Germany, where the outrage has been loudest, has perhaps the strongest privacy laws in Europe – understandable, given the country's history, many say. After experiencing the Gestapo in the Third Reich and the Stasi state security service in the former East Germany, Germans broadly oppose surveillance by the state. Even information-gathering functions like the national census stir controversy.

One result is that, even as Germany functions as the economic powerhouse of Europe, its intelligence agencies are limited by budget constraints and an organizational chart that seeks to rein in any tendencies toward centralization and expanded snooping. The capabilities of German intelligence agencies are thus limited compared with those of the US, Britain, or France.

"We would have difficulties carrying out electronic espionage on other leaders," says Elmar Thevessen, a security expert with German public broadcaster ZDF. Added together, the 10,500 employees in Germany's intelligence community operate on just over a billion dollars annually – a pittance compared with US spending on intelligence operations.

Germany's secret agencies mirror the country's federal structure. There are three main national agencies: the Bundesnachrichtendienst (BND – foreign intelligence), the Bundesamt für Verfassungsschutz (BfV – domestic intelligence, but also counterintelligence against foreign agencies), and the Militärischer Abschirmdienst (MAD – armed forces intelligence). The BND and BfV have equivalents in the 16 German states (known as Länder).

The structure is often criticized as ineffective – most recently for the inability of intelligence agencies to find a gang of neo-Nazi killers that committed a series of hate crimes over almost a decade. That failure was attributed to the lack of communication among Germany's many intelligence offices.

German intelligence was also criticized for not discovering the Hamburg cell connected to the 9/11 terrorists. Indeed embarrassment over that failure has played a role in Germany's stepped-up information sharing with the US over the past decade.

For critics, one result of the increased cooperation has simply been to make Germany the most spied-on country in the European Union. Germany's Spiegel magazine reported in June that as many as 500 million German communications were swept up in December 2012 and stored by the NSA. Less clear was how much of this data was collected by the NSA itself and how much of it was fed to the US by German agencies. The BND confirmed at the time it was sharing metadata with the Americans, but it would not reveal how much it handed over – and it maintained that the civil rights of German citizens were not violated.

The transfer of metadata is allowed under German law "if it is deemed necessary to achieve German security and foreign-policy goals and if it is sanctioned by the chancellery." That wording has prompted some in Germany to doubt Merkel's professed shock upon discovering that America's spies were tapping her cellphone.

"Angela Merkel was definitely aware of the fact that Germany's leadership intentions were a target of US intelligence agencies and that these agencies, as instructed by the White House, would do everything technically possible to secure that information," says Erich Schmidt-Eenboom, head of the Research Institute for Peace Studies in Weilheim, Germany. Why else, he adds, are German cabinet ministers and political leaders issued special mobile phones for encrypted calls?

Yet little of that realpolitik appears to have caught on with Germans. Polls show Germans' trust in the US suffering in the wake of the NSA affair. A survey published in October by pollster Emnid found that 73 percent of Germans do not believe that President Obama did not know about Merkel's phone being tapped. But Germans also think their own government has failed in the process, with an August poll by Forsa finding that 73 percent of Germans think their government does not do enough to prevent the NSA from spying on Germany.

One result of the revelations is that some German government ministers and parliamentarians are clamoring for a no-spy agreement between Berlin and Washington. The idea would be to forge something similar to the "Five Eyes" accord the US and four other English-speaking countries (Britain, Canada, Australia, and New Zealand) reached after World War II. But even if Germany doesn't get the same deal with the US that Britain enjoys, some national security experts say US-German cooperation will continue.

"Germany depends for its security on US help," says Mr. Thevessen. "But it will insist this help is aimed at preventing terrorism, and not at the chancellor's mobile phone."

•   •   •

France has been rocked by its own NSA revelations. In October, the Paris daily Le Monde reported that the American agency had swept up more than 70 million French communications over a one-month period ending in early 2013.

Yet even though French President François Hollande criticized the information collection as "unacceptable among friends," the French political response was muted compared with Germany's. This suggested to some intelligence experts that NSA chief Gen. Keith Alexander had it right when he told Congress that his agency did not collect the metadata in question, but that it had been provided by French intelligence.

In either case, the blasé French reaction reflected a long tradition of espionage – and public resignation that it occurs. The word "espionage" has its origins in medieval French, with officials snooping at least as far back as King Louis XIV.

"Let's be honest: We listen, too," former French Foreign Minister Bernard Kouchner told radio station France Info last month. "Everybody listens to everybody. We just don't have the means the US does, which makes us jealous."

Indeed, the French are doing more than any other EU country except for Britain to keep up. The six services that make up French intelligence receive between ¤5 billion and ¤7 billion a year (between $7 billion and $10 billion), says Jean-Jacques Urvoas, a Socialist lawmaker who is vice president of France's parliamentary intelligence committee – or about 10 percent of the estimated $80 billion in annual US intelligence spending.

One of the French services is the General Directorate for External Security (DSGE), which has about 5,000 employees, roughly half of whom are in a "technical division" that is the equivalent of the NSA, says Eric Denécé, an expert on French intelligence who wrote a recent book on the service. France focuses 90 percent of its intelligence on terrorism and military operations, he says. But with the annual budget of the DSGE at ¤1.2 billion (about $1.6 billion), "the difference between our two countries is huge," Mr. Denécé says.

The French seem to be far less outraged by the spying allegations than the Germans. A survey by French polling firm BVA on Mr. Obama's popularity in July, after the first allegations of NSA spying in Europe, found the Snowden affair had little effect on the US president's image. About two-thirds of the French said the affair isn't "extremely grave" because all countries spy.

Those numbers may have shifted a bit after Le Monde's October revelations of NSA surveillance. But the public was also confused, some experts say, since an earlier Le Monde investigation revealed evidence of widespread French spying on their own citizens' communications. That report may have buttressed Alexander's claim that the metadata sweeps reported in the European press were actually carried out by domestic agencies and shared with the US.

France's attenuated reaction is also rooted in the knowledge that the two allies are battling the same enemy. "Our cooperation with the US will not enormously change in terms of the fight against terrorism," says Mr. Urvoas. "We have a common objective, which is to eradicate Islamist terrorism."

"Today France cannot afford to have a real dispute with the US," concurs Philippe Moreau Defarges, a foreign-affairs expert at the French Institute of International Relations in Paris.

"For Al Qaeda or Islamists, it would be very good news to have France and the US divided and fighting each other," he adds.

•   •   •

Like France, Spain harbors a high tolerance for snooping in the name of security and fighting terrorism, which has translated into a modest public reaction to the transatlantic spy wars.

"Spaniards don't share the sense that their national security has been compromised," says José Ignacio Torreblanca, head of the Madrid branch of the European Council on Foreign Relations. "Unlike what's happening elsewhere, where public opinion and media have mounted pressure, it doesn't appear that the government is concerned or that people are leaning toward anti-Americanism."

The Spanish daily El Mundo reported in October, based on Snowden leaks, that intelligence services swept up at least 60 million communications in Spain in one month, from December 2012 to January 2013. But as in the case of the reported French information sweep, the question became, Who actually did it?

According to Spanish media, the director of Spain's spy service recently confirmed in a closed-door parliamentary session that the agency, known as the National Intelligence Center, has in fact collected metadata of millions of communications, but outside Spain, which could theoretically shield it from prosecution. He also said that all interceptions were sanctioned by courts. As such, the debate is shifting from the legality of what has been done, to the reforms necessary to ensure it doesn't continue, at least not without infringing on privacy laws.

Spanish privacy laws are among the strongest in Europe, and courts must authorize any tapping into citizens' communications. Still, authorities have broad power, and Spaniards – who have been under terrorist threat for decades, from domestic separatists as well as Islamist extremists – broadly accept intrusive measures in exchange for security.

The other focus in Madrid is to uncover exactly how much spying has been going on – regardless of the nationality of the spies doing it – and to reinforce the rules governing domestic and friendly foreign espionage agencies alike. Yet even if new safeguards are implemented, experts don't think they will undermine the spying done by European or US agencies.

If anything, they say that the transatlantic surveillance debate is likely to benefit security and intelligence sharing by clarifying and adapting the rules to new technological capabilities.

•   •   •

Britain's response to the surveillance flap has been equally shrug-shouldered, in part because of one number: 007. Britons maintain an almost romantic sense of espionage – or at least they don't view it as an imminent threat to British democracy and personal freedoms.

"In Britain we think about spies as James Bond figures, and we're generally sympathetic to spying," says Mike Harris, head of advocacy at Index on Censorship, a London-based freedom of expression advocacy organization.

Decades of Northern Ireland's "Troubles" and, more recently, the threat of home-grown Islamist terrorism, have also contributed to widespread support for surveillance activities. "Unless you read The Guardian" – the London newspaper that has featured Snowden's leaks – "there's probably not much interest here" in the allegations of NSA snooping in Europe, says Rob Pritchard, an associate fellow at the Royal United Services Institute. "I'd say half the population does not care, and a sizable chunk of the rest think the government is doing a good job."

Yet public acceptance of surveillance doesn't mean that nothing should change. The scale of the "data trawling" is undermining the justification for it, says Mr. Harris, who notes that agencies aren't just monitoring a few thousand people now but tens of millions. He wants to see better-targeted surveillance and monitoring that is done "in an open and democratic manner."

David Lowe, a lecturer in law and counterterrorism at Liverpool John Moores University, agrees. He believes listening to Merkel's phone "is [going] too far." "What this whole episode has done is shown the inadequacies of international law and the need to have better international agreements in place," he says.

•   •   •

One of the ironies of the uproar over NSA surveillance is how it has quieted criticism and scrutiny of another major espionage player – Beijing.

Just nine months ago, China was at the center of an international snooping debate, after US cybersecurity firm Mandiant released a report alleging that a secretive hackers' branch of the Chinese military was probably one of the world's "most prolific cyber-espionage groups." Whatever the truth of such accusations – Beijing denied them forcefully – they have been largely forgotten as world attention abruptly shifted to the NSA and its surveillance activities.

"Instead of Beijing being in the spotlight for what it's been up to, it's Washington," says Harvard's Walt. "And from a Chinese point of view, certainly that's preferable."

The Chinese government has refrained from saying very much about the transatlantic spat – other than to reiterate its call for a UN-regulated code of conduct "to ensure an open, secure cyberspace," in the words of Foreign Ministry spokeswoman Hua Chunying. The government did pronounce itself "extremely concerned" after an Australian newspaper reported that documents leaked by Snowden indicated that the US Embassy in Beijing and consulates in Shanghai and Chengdu were engaged in tapping Chinese phones.

The government demanded an "explanation" of the allegations – but mostly it left the berating of a besieged US to official media. "The US Owes an Apology to the World," trumpeted the overseas version of the People's Daily, the official organ of the ruling Communist party.

The front-page article by a researcher at the Chinese Academy of Military Science went on to lament that, while "in public, the US poses as a highly moral country ... it stealthily ignored the Constitution and international law, trampling on basic human rights, including privacy, at home and abroad."

Such overblown self-righteousness may not have swayed many. But there seems little doubt that the massive information-gathering capabilities and "we can do it, so why not do it?" ethos revealed in the NSA documents could, if left unchecked, damage American national interests. These range from the international acceptance of US Internet service giants such as Google to prospects for spreading values such as freedom of expression and an open World Wide Web.

"America's true cyber power is not the NSA and Cyber Command but its companies, artists, and citizens, which create the Internet and fill it with commerce and content," says Jason Healey, a former White House adviser on cybersecurity who is now director of the Cyber Statecraft Initiative at the Atlantic Council in Washington. "But [that cyber power] is under threat from such uncontrolled online espionage."

At the same time, others caution against forgetting how much intensified intelligence cooperation over the past decade has made both sides of the Atlantic safer. "The Europeans have a reason to be angry about some of this stuff that's been going on," says Boston College's Mr. Laurence, "but there should be a limit to the indignation because we have been working together to make everyone safer."

No one expects the US or anyone else to negotiate away the age-old intelligence priority of trying to fathom the intentions of nations – even friendly ones. But perhaps the future tapping of friendly leaders' cellphones can be given up so that such activities no longer distract from critical international intelligence pursuits. In a similar way, the months ahead may tell if a "code of conduct" can be reached among allies that serves both security and personal-freedom interests.

• Contributing to this report were staff writers Sara Miller Llana in Paris and Peter Ford in Beijing as well as correspondents Michael Steininger in Berlin, Andrés Cala in Madrid, and Ian Evans in London.