Analysts expect the popular Merkel to weather the scandal, but her close ally, Interior Minister Thomas de Maiziere, has drawn media and opposition fire over the "BND affair", referring to the foreign spy service.
A core question is whether his ministry misled parliament when it claimed, as recently as April 14, to have no knowledge of alleged US economic spying in Europe, and of Germany's alleged involvement.
German media have reported that US intelligence asked the BND to eavesdrop on the online, phone and other communications not just of terror suspects but also of France-based aviation giant Airbus, the French presidency and EU Commission.
Conservative daily Die Welt earlier said the wider scandal now "has reached the chancellery", and mass-circulation Bild newspaper portrayed de Maiziere -- Merkel's former chief-of-staff responsible for overseeing intelligence services -- as a liar, picturing him with a Pinocchio nose.
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Bild, which usually supports Merkel, labelled her "hypocritical" for having voiced moral outrage over 2013 revelations that the US National Security Agency (NSA) had listened in on her mobile phone.
Merkel's spokesman Steffen Seibert and de Maiziere have denied that the government misled parliament about the surveillance activities, pledging to share information behind closed doors to parliamentary panels looking into the secret services.
"If it is indeed confirmed that her ... Friends in Paris were knowingly spied on by the BND ... Then things can hardly get any more embarrassing," said Stroebele, a critic of US secret services who has visited fugitive intelligence leaker Edward Snowden in Moscow.