The Suddeutsche Zeitung quoted unnamed sources close to the German Federal Intelligence Service, BND, as saying the United States' National Security Agency has shown little flexibility in the talks, which are aimed at producing a bilateral waiver of electronic espionage between the allies.
In fact, the BND sources told the newspaper that despite Washington's claims to want such an agreement, it had yet to admit the NSA bugged the cellphone of German Chancellor Angela Merkel and won't say if other German leaders had been under surveillance.
This had led to bitter disappointment on the German side that the United States doesn't appear to be serious about reaching a deal after earlier declaring in writing that the NSA is not doing anything to harm German interests, the newspaper said.
"The Americans have lied to us," a senior official was quoted as saying.
"We're not getting anything [from Washington]," another source said.
The alleged refusal of the Americans to sign a deal with substance has surprised Berlin, the newspaper reported.
Last summer, NSA chief Keith Alexander and German negotiators under BND President Gerhard Schindler began talks to strike a far-reaching, no-spy agreement, with Berlin apparently expecting a quick and positive conclusion.
The government said in August it had been given verbal "assurances" from the U.S. side that there should be "no mutual espionage, no business related spying, and no infringement of national law."
Those alleged assurances now seem to have vanished, the report said.
A government spokesman declined to comment Monday on the Suddeutsche Zeitung story, but the German Federal News Service issued a statement saying the negotiations "are ongoing. We are continuing to talk."
The revelations that the no-spy talks may be on the verge of failure brought outrage from German political leaders Tuesday.
Social Democratic Party parliamentary leader Thomas Oppermann said the failure to reach an agreement would be "unacceptable."
"The coalition parties agree that a robust anti-spy agreement between Germany and the United States must come," he said in Berlin, adding he hoped a planned visit by Merkel to Washington would help.
"A failure of the agreement would be unacceptable," he said. "It would change the political character of relations with the U.S."
"Absolutely nothing from the little bit of what the government has ever undertaken and requested from the United States has been successful," Jan Korte of the opposition Left Party told the Berliner Zeitung newspaper. "The reason is the submissive behavior of both the new and the old government."
Even the conservative Christian Democratic Union expressed alarm.
CDU politician Michael Grosse-Bromer said he "would be very disappointed if an agreement doesn't come," asserting it's not right "when friends are spied on and monitored, if it is not meant to take action against possible terrorist attacks."
The failure of the agreement would be a major embarrassment for Merkel, exposing the negotiations as merely a domestic political showcase project and demonstrating to the government's critics the chancellor has little real influence in Washington, Der Spiegel reported.