* German Foreign Minister summons U.S. ambassador
* Phone scandal could hit free trade zone talks
* White House says is not tapping Merkel's phone
By Madeline Chambers and Alexandra Hudson
BERLIN, Oct 24 (Reuters) - Germany summoned the U.S.ambassador on Thursday over suspicions Washington may havebugged Chancellor Angela Merkel's phone and a leading Germanpolitician said a free trade deal would be hard to agree if theU.S. was infringing privacy.
Foreign Minister Guido Westerwelle's personal summons to the ambassador, a day after Merkel called U.S. President BarackObama to demand clarification, showed how seriously Berlin wastaking the issue, which has caused outrage in Germany.
The ambassador would be informed of the German government'sposition "in no uncertain terms", the foreign ministry tweeted.
State surveillance is a highly sensitive subject in acountry haunted by memories of eavesdropping by the Stasi secretpolice in East Germany where Merkel grew up.
Social Democrat Chairman Sigmar Gabriel, whose party is incoalition talks with Merkel's conservatives, said he was shockedby the idea the U.S. had spied on Merkel and other Germans.
"It is hard for me to imagine negotiating a free trade dealwith the United States to the end if the freedoms and personalrights of citizens in Europe are endangered," said Gabriel, whocould be vice chancellor under Merkel.
His anger was echoed by many other Germans, who feel sucheavesdropping would mark a betrayal by the country that did mostto defend West Germany from Communism during the Cold War.
"The Americans are and remain our best friends but this is ano go," Defence Minister Thomas de Maiziere told Germantelevision. He said he had long thought his mobile phone wasbeing tapped, "but not by the Americans".
The White House said Obama had assured Merkel Washington "isnot monitoring and will not monitor" her communications, butstopped short of denying it had previously monitored thechancellor, who is often seen with a mobile phone in her hand.
Merkel's spokesman said Berlin had received information herphone may have been monitored and Merkel had made clear that iftrue, it would represent a "grave breach of trust".
Germans on the street were also angry.
"This is not how you should treat your partners," saidStephanie Hilebrand, 38, walking by the Brandenburg Gate duringa visit from the western town of Paderborn.
"We're not terrorists, nor is our chancellor."
Many politicians said the row could upset relations betweenObama and Merkel, who come from opposing political camps andwho, diplomats say, have respectful but sometimes strained ties.
"This could be a problem for the personal relationship, atleast it certainly would do if it was me," Germany's Elmar Brok,a conservative member of the European Parliament, told Reuters.
The two got off to a bad start in 2008 when Merkel stoppedObama, then a Democrat senator from Illinois, holding a speechat the Brandenburg Gate, a symbol of reunited Germany.
Although the leaders met several times in other places, ittook Obama 4-1/2 years to make a presidential visit to Berlin.
Under Merkel, Germany caused frustration in Washington byrefusing to back Western intervention in Libya and Obama hasexpressed frustration with the euro zone's crisis management.
The question of mass U.S. spying on European allies caused astorm in Germany over the summer after revelations from EdwardSnowden, the fugitive former U.S. intelligence operative.Merkel's government had tried to draw a line under it.
On a June visit to Berlin after revelations of the covertU.S. Internet surveillance programme code-named Prism, Obamadefended U.S. anti-terrorism tactics, saying Washington was notspying on ordinary citizens.
The new revelations look likely to overshadow a summit of EUleaders in Brussels which starts on Thursday, with Francepushing for them to be put on the summit's agenda after a reportthe U.S. had collected French phone records.
"It is important for the EU to appear united on this againstthe United States," said Wolfgang Bosbach, a member of Merkel'sconservative Christian Democrats (CDU).
However, some lawmakers said it was in Germany's intereststo get the free trade deal though. "I don't think we wouldimprove things if we suspended them. It is important to continuethe talks swiftly, and that we reach agreements," Bosbach said.
Industry groups also urged Berlin to continue the talks.
"Political standstill in the United States and growingmistrust should not block the free trade deal," said MarkusKerber, head of the BDI industry association.
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