Der Spiegel magazine reported over the weekend that Snowden, currently hiding in a Moscow airport, had said the US secret service was "in bed with the Germans."
His assertion was confirmed by Merkel who said of the spying programme: "We as Germans got a lot of information." Speaking to a Christian Democratic Union party conference on Saturday she said terrorist attacks in Germany had been foiled thanks to timely information from the Americans.
"But this does not justify bugging each other's embassies. And that is why I say bugging really doesn't work between friends," she added.
Referring to Monday's talks between the European Union and the US about free trade agreements, opposition Social Democratic Party's parliamentary party leader Frank-Walter Steinmeier said he expected "clear and dependable guarantees that there will be no further spying operations - before the assumption of negotiations."
Snowden is in Moscow avoiding American authorities who want to prosecute him for leaking details of the National Security Agency (NSA) spying operation known as Prism, the exposure of which has caused international scandal.
He told US cipher expert Jacob Appelbaum and documentary filmmaker Laura Poitras that security chiefs on both sides of the Atlantic had organized their cooperation so that they could protect their "political leadership from any backlash", Der Spiegel reported.
The pair had sent Snowden questions shortly before he revealed the Prism operation in early June, but his answers have only now been published.
"We warn the others when someone who we want to get, uses one of their airports - and they deliver then to us," said Snowden.
"The other authorities don't ask us where we have the evidence from, and we don't ask them anything." This protects politicians from having to take any responsibility should it be revealed how "massively the privacy of people is being abused," he said.