Allegations of US spying in Germany and Europe had
hit Berlin's relations with Washington, Chancellor Angela Merkel
warned Friday, as she attempted to stop the scandal from derailing
her bid for re-election in September.
"Germany is not a police state. Germany is a land of freedom," Merkel said at her annual press conference, where she faced a barrage of questions about the claims over US communications surveillance.
"A friendship is founded on trust and in this case trust has been affected," she said, warning about the threat posed to Germany's relations with the United States by the allegations.
Until now, the claims of US spying have failed to dent Merkel's commanding lead in opinion polls.
But government officials are concerned that the publication of more damaging revelations could set back the chancellor's hopes of securing a third term in the September 22 election.
A survey published Friday by the Infratest dimap pollsters showed two-thirds of Germans are unhappy with her government's handling of the claims.
This follows disclosures, believed to be from US whistleblower Edward Snowden, detailing how the US National Security Agency (NSA) was spying on allied governments and their citizens through the so-called PRISM programme.
"German law on German soil", Merkel insisted.
She indicated that the key focus of the investigation into the allegations by several authorities in Berlin would be on whether any German laws had been broken by international intelligence agencies operating in Germany.
The chancellor also said her government's investigation into US surveillance activities in Germany would take some time to finish.
"The work is not complete," she said. "It is ongoing."
Her press conference coincided with a warning from Snowden's associates that new claims could be published shortly.
Until now, opinion polls consistently show Merkel's conservative Christian Democrats (CDU) and their Bavaria-based allies, the Christian Social Union (CSU), as likely to retain their position as the biggest political bloc in parliament - with more than 40 per cent of the vote.
Merkel herself enjoys an approval rating of about 60 per cent, rising to 90 per cent among business leaders.
A large part of her current political success is due to the recent solid performance by the German economy, and what is perceived in Germany to be her deft handling of the eurozone debt crisis.
Her press conference was, however, held against the backdrop of the threat of renewed eurozone tensions.
She was quizzed about speculation that Greece might be forced to face another debt restructuring once the German election is out of the way.
"I don't see a debt restructuring for Greece," Merkel said.
She said such a move could lead to "massive uncertainty" for all investors in the eurozone, and raise fresh questions about the stability of the 17-member currency bloc.
The chancellor's traditional media briefing normally marks the launch of her summer holiday. But this year she will first travel to seaside resorts in northern Germany and visit areas recently hit by floods, for a series of campaign stops.
Merkel is then expected to travel to northern Italy for a few days of hiking in the Alps, and to attend the opening of the annual Wagner opera festival in the southern German town of Bayreuth.
Europe's efforts to establish a banking union would be a key part of her third-term agenda, Merkel told some 250 journalists.
As successes during her current term, she pointed to her government's moves towards budget consolidation and the progress that Europe had made in dealing with the debt crisis, along with regulating financial markets.
But the chancellor has also attempted to shore up her re-election bid by co-opting several of the main policies of the opposition Social Democrats and Green Party as her own.
These include abandoning nuclear energy, introducing a minimum wage and improving social benefits.
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