Europe sounds alarm as Britain backs US cyber-spies

An inquiry into official monitoring of all phone calls, faxes and emails is to be launched by Euro MPs on Thursday. The move comes as evidence is emerging that the US-backed eavesdropping operation is being used for industrial espionage on behalf of US business.

The Echelon project, which allows governments to eavesdrop, is run by the US with British support. It searches through telephone calls, faxes and email looking for key words and patterns.

Duncan Campbell, a British intelligence expert and author of a European Parliament report on Anglo-American eavesdropping, said the evidence from the US was worrying. Recent evidence given in Washington by R James Woolsey, the former CIA director, showed the US would interfere in contracts if it learnt that one of the international parties was bribing local government officials. Such activity has earned US companies "billions of dollars".

A CIA letter to the Senate Intelligence Committee said: "In 1993, we alerted the policymakers to 51 cases involving some $28bn [£19bn] in total sales where these tactics among others were being used to disadvantage US firms seeking business overseas." US companies are, in theory, prohibited from bribing government officials. Officials say using eavesdropped information merely "levels the playing ground".

Thursday's meeting of the Home Affairs Citizens Rights Committee is expected to order an inquiry into Echelon. While the inquiry will help to put Echelon on the political agenda, MEPs do not have the powers to require EU security officials to attend. But the European Commission has agreed that if the allegations are true it will introduce strict laws to protect the privacy of individuals and companies.

Portugal, which holds the EU presidency, will also raise the issue at a meeting of justice ministers later this month. EU governments "cannot accept a system of interception of telecommunications which doesn't respect legal standards in member states", said Fernando Gomez, Portugal's Interior minister.

But the Echelon net is set to widen. According to claims in an Irish magazine, Ireland will become part of the Echelon alliance in June, joining the US, Britain, Canada, Australia and New Zealand. A French MEP, Jean-Claude Martinez, told the European Parliament: "We thought we were threatened by [Austria's Jörg] Haider, but it's really the United Kingdom of Tony Blair. We thought Europe showed solidarity."

British support for Echelon, via the intelligence listening post at GCHQ, Cheltenham, could prove embarrassing.

One British MEP told the Independent on Sunday: "Our European counterparts are asking whose side are we on, the European Union or the Americans?"

America considers the Echelon system so crucial that the National Security Agency has appointed its deputy director Barbara MacNamara to become the London liaison officer between the two countries' eavesdropping agencies.