* Germany's Merkel demands action, not words
* Merkel says other EU states should join no-spying dealwith U.S.
* Franco-German frustration could spur action on dataprivacy rules
By John O'Donnell and Luke Baker
BRUSSELS, Oct 24 (Reuters) - German Chancellor Angela Merkeldemanded on Thursday that the United States strike a "no-spying"agreement with Berlin and Paris by the end of the year, sayingalleged espionage against two of Washington's closest EU allieshad to be stopped.
Speaking after talks with EU leaders that were dominated byallegations that the U.S. National Security Agency had accessedtens of thousands of French phone records and monitored Merkel'sprivate mobile phone, the chancellor said she wanted action fromPresident Barack Obama, not just apologetic words.
Germany and France would seek a "mutual understanding" withthe United States on cooperation between their intelligenceagencies, and other EU member states could eventually take part.
"That means a framework for cooperation between the relevant(intelligence) services. Germany and France have taken theinitiative and other member states will join," she said.
In a statement issued after the first day of the summit, theEU's 28 leaders said they supported the Franco-German plan.
Merkel first raised the possibility of a "no-spying"agreement with Obama during a visit to Berlin in June this year,but nothing came of it. The latest revelations, part of the vastleaks made by former U.S. data analyst Edward Snowden, wouldappear to have renewed her determination for a pact.
The United States has a "no-spying" deal with Britain,Australia, New Zealand and Canada, an alliance known as "FiveEyes" that was struck in the aftermath of World War Two.
But there has traditionally been a reluctance to makesimilar arrangements with other allies, despite the closerelations that the United States and Germany now enjoy.
Merkel said an accord with Washington was long overdue,given the shared experiences the countries face.
"We are in Afghanistan together. Our soldiers experiencelife threatening situations. They sometimes die in the samebattles," she said.
"The friendship and partnership between the European memberstates, including Germany, and the United States is not aone-way street. We depend on it. But there are good reasons thatthe United States also needs friends in the world."
As EU leaders arrived for the two-day summit there wasnear-universal condemnation of the alleged activities by theNSA, particularly the monitoring of Merkel's mobile phone, asensitive issue for a woman who grew up in East Germany, livingunder the Stasi police force and its feared eavesdropping.
Some senior German officials, and the German president ofthe European Parliament, have called for talks between the EUand United States on a free-trade agreement, which began inJuly, to be suspended because of the spying allegations.
Merkel, whose country is one of the world's leadingexporters and stands to gain from any trade deal withWashington, said that was not the right path to take, saying thebest way forward was to rebuild trust.
The series of Snowden-based leaks over the past three monthshave left Washington at odds with a host of important allies,from Brazil to Saudi Arabia, and there are few signs that therevelations are going to dry up anytime soon.
Britain's Guardian newspaper reported on Thursday that oneNSA contact, a U.S. official, had provided the telephone numbersof 35 world leaders that had then been monitored.
As well as raising questions about the EU-US tradenegotiations, the spying furore could also have an impact ondata-privacy legislation working its way through the EU.
The European Parliament this week backed legislation,proposed by the European Commission in early 2012, that wouldgreatly toughen EU data protection rules dating from 1995.
The new rules would restrict how data collected in Europe byfirms such as Google and Facebook is shared with non-EUcountries, introduce the right of EU citizens to request thattheir digital traces be erased, and impose fines of 100 millioneuros ($138 million) or more on rule breakers.
The United States is concerned the regulations, if theyenter into law, will raise the cost of handling data in Europe.Google, Yahoo!, Microsoft and othershave lobbied hard against the proposals.
Given the spying accusations, France and Germany - the twomost influential countries in EU policy - may succeed in gettingmember states to push ahead on negotiations with the parliamentto complete the new data regulations by 2015.
For the United States, it could substantially change howdata privacy rules are implemented globally.
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