PARIS/BERLIN (Reuters) - The European Commission said it would go ahead with EU-U.S. trade talks on Monday but that discussions would begin in parallel on allegations of U.S. spying, after Paris had called for a two-week delay.
France - which already held up the start of the talks to protect its entertainment industry - had said earlier on Wednesday that a "climate of mistrust" after reports that Washington is spying on EU institutions meant it was not a good time for negotiations to start.
"The French position is that we cannot start trade negotiations if we don't have at the same time and date a discussion ... with the U.S. to investigate the activities of the U.S. intelligence services," French President Francois Hollande told a news conference in Berlin after an EU summit on youth unemployment.
As a compromise, European Commission President Jose Manuel Barroso said Europe would begin the talks as planned but that it would at the same time set up EU-U.S. working groups to examine the scope of U.S. intelligence tactics.
"Negotiations on (the partnership) are and will remain a top priority," Barroso told the news conference. "In parallel it is important to address concerns that have been clearly expressed on the European side on some intelligence activities and also on the implication for privacy and data protection."
Even though France could not unilaterally block the talks after EU states gave the Commission a negotiating mandate last month, the row was yet another setback for a trade deal that could boost the EU and U.S. economies by more than $100 billion each a year. Paris last month threatened to block talks unless its movies and online entertainment were ring-fenced.
Hollande said last week that if true, the spying allegations published by Der Spiegel magazine may hinder U.S.-EU relations.
Earlier in the day, after Hollande and government ministers discussed the issue at a cabinet meeting, Foreign Minister Laurent Fabius had told parliamentary question time: "It's a very important agreement and it's true that to begin discussions in a climate of mistrust would not necessarily be advisable."
"TIME IS OF THE ESSENCE"
In Washington, U.S. trade officials were preparing to host their European counterparts for the first round of talks, barring a surprise decision by the EU not to attend on Monday.
"Both the European Union and the United States have a strong interest in successfully concluding the planned (deal). It opens huge potential for both sides," Barroso said in Berlin.
Speaking right after Barroso, German Chancellor Angela Merkel welcomed the twin-track approach. "Time is of the essence," she said.
The European Parliament debated this week whether it should ask the Commission to suspend the trade talks and opted at the last minute not to. It could still veto any trade agreement further down the road if the spying row continues.
The revelations about the U.S. surveillance programme were made public by former National Security Agency contractor Edward Snowden, now a fugitive believed to be in the transit area of a Moscow airport as he tries to find a country that will protect him from prosecution in the United States on espionage charges.
European Union Justice Commissioner Viviane Reding separately said U.S. Attorney General Eric Holder had committed to her in a letter on Tuesday to set up a transatlantic expert group discussing surveillance tactics.
"The purpose <of the working group> is to establish the facts and for the Commission to be able to assess the proportionality of the programs with regard to the data protection of EU citizens," she told the European Parliament in Strasbourg on Wednesday.
The group will have its first meeting this month and a second one in Washington in September, she said, adding that the Commission would report on the group's findings in October.
(Reporting by Jean-Baptiste Vey in Paris, Ethan Bilby and Claire Davenport in Brussels, Elizabeth Pineau and Annika Breidthard in Berlin and Douglas Palmer in Washington; Writing by Catherine Bremer and Natalie Huet; Editing by Louise Ireland, Mark John and David Evans)