* German newspaper says US intransigence dims hopes of deal
* Merkel government says talks proceeding but difficult
* White House says talks reflect "share threats we face"
* U.S. tapping of Merkel's mobile phone shocked ally Germany
By Erik Kirschbaum
BERLIN, Jan 14 Chancellor Angela Merkel's government on Tuesday brushed aside a report that talks with Washington to prevent further U.S. spying on German ministers faced collapse, saying it continued to push for a deal on the politically explosive issue.
Interior Minister Thomas de Maiziere said talks about reaching a "no-spy" agreement were proceeding. He would not comment directly on a Sueddeutsche Zeitung newspaper report that they were close to failing due to U.S. intransigence.
After reports last year that the National Security Agency (NSA) of one of Germany's closest allies had monitored Merkel's mobile phone, Berlin has sought a sweeping agreement to prevent any repeat of such a humiliation.
De Maiziere said that remained the goal. "That's just not on at all," he told a news conference on Tuesday, referring to reports that Merkel's phone was tapped.
The widely respected Sueddeutsche Zeitung reported the talks were close to collapse because U.S. officials refused to promise that Washington will refrain from eavesdropping on German ministers or other top government officials.
"We're not getting anything," a German BND intelligence agency source was quoted by the Munich daily as saying.
A government source in Berlin told Reuters the United States remained interested in a deal but was loath to give a blanket pledge not to try to monitor government members.
Caitlin Hayden, a spokeswoman for the U.S. National Security Staff at the White House said discussions with Germany so far had yielded "a better understanding of the requirements and concerns that exist on both sides".
"Such consultations will continue among our intelligence services as a part of our shared commitment to strengthen our practical cooperation in a manner that reflects the shared threats we face, the technological environment in which we operate, our close relationship with one another, and our abiding respect for the civil and political rights and privacy interests of our respective citizens," Hayden told Reuters.
German Foreign Minister Frank-Walter Steinmeier said on Tuesday he was anything but relaxed about the matter but there was still time to make progress. "A next step will be that we look at the reforms to be announced by President Obama with regard to limiting the activities of intelligence agencies."
NAIVE GERMAN GOVERNMENT?
Lawmakers in Berlin reacted sharply to the Sueddeutsche report with several who are in Merkel's grand coalition warning of consequences if the talks collapse.
"The Americans understand one language very well - and that's the language of business," said Stephan Mayer, a senior lawmaker in the ranks of Merkel's conservatives.
He told Reuters that if the deal fails, Germany should consider barring U.S. companies from getting public sector contracts because it could not be ruled out that U.S. contractors would engage in espionage activities.
"I would want to pull out this sword that there could be economic sanctions at stake here," Mayer said.
Michael Hartmann, a senior Social Democrat lawmaker, also called for sanctions if the talks unravelled.
"If these reports are true I can only warn the Americans that they haven't heard the explosion over here," Hartmann told German radio. "We're not going to allow millions of Germans, right up to the chancellor, to be eavesdropped on.
"We have to tell the United States that U.S. companies operating in Germany and can't guarantee the security of our data will not get any contracts from us anymore."
But Sandro Gaycken, a technology and security researcher at Berlin's Free University, said placing limits on spies would probably not work in practice anyhow.
"It's a naive to think a 'no-spy' deal would be possible but there's no harm raising the issue. It's not terribly surprising. Not many people really expected it would happen and even if there was a deal, would anyone really trust it?" (Additional reporting by Andreas Rinke and Thorsten Severin in Berlin, Mark Hosenball in Washington; Editing by Mark Heinrich)