Spy on people they believe are enemies, rather than allies or innocent bystanders?

Well now you've identified one of the great unsolved problems in asymmetric warfare. How do you know that someone is an enemy without spying on them first?

The most obvious approach would be to wait until someone's given you at least the tiniest hint that they could possibly be planning on attacking you before treating them as a potential enemy.

What kind of legitimate threat would the US government even be watching out for with the German Chancellor? Are they so paranoid that they think the Fourth Reich is just over the horizon, or did Merkel's statement that "Islam is part of us" tip them off that she might be running a terrorist sleeper cell?

> What kind of legitimate threat would the US government even be watching out for with the German Chancellor?

Cancelling some important weapons contracts? ECHELON was used for industrial espionage.

Hence my use of the word "legitimate".

I'd like to think that even those who think that it's fine for the state to spy on everyone on the miniscule chance that they might be a terrorist, and even those who think that it's OK to spy on everyone just in case they are planning to commit a crime, would agree that the state shouldn't be spy on people for the purposes of commercial advantage.

And what better way to encourage another country to trust you enough to buy military equipment from you than by spying on their government?