Eric is confusing two issues, probably purposefully.
The issue of illegal (at least against US citizens) mass surveillance by the NSA and the like is one problem - but as others have pointed out, its something that should be assumed to always be happening, and doesn't have any real impact on the internet. People make a fuss about it, particularly in the US, but I think most people assumed it was happening anyway and it hasn't really changed the way that people, businesses or governments operate. Just look at the recent Silk Road story as an example
The issue that has everyone jittery is the close cooperation that has been shown between the US Government and US based companies, and from a legal perspective the stance that the US government is taking on data stored by US companies, outside the US, for a non-US entity. This has a huge effect on Google's business in particular, not as an adverting company - I would be surprised if they are loosing a significant amount of their consumer business - but rather their growing enterprise / cloud business. No one outside the US will want to switch to Gmail if their email can be read, without their knowledge, by the US Government issuing a National Security Letter, or even just by any local judge issuing a subpoena.
This is what they are talking about when they say you have to start a data center in Germany just to serve customers there. Its not the NSA hacking your system, or even snooping on the wire people are worried about. Its the legal and risk issue that the US government can seize your data, without any notification, and you have no legal recourse to prevent it happening.
Its a great opportunity for companies in Europe, but if your a US headquartered company, as Google is, its going to break *your* small part of the internet