How are American interests are furthered by listening to the phone calls of Angela Merkel?
You can use hypotheticals if you want.
It's important to know what other countries, even our allies, are saying to other countries or even about ourselves. Say we're negotiating some agreement with Germany and they seem totally for it but we intercept some communication between them and France or Saudia Arabia in which the clearly express that they have no intention of honoring or going through with this agreement. Clearly, intercepting their communications help us there.
Or say we are tracking some terrorist who we believe is hiding out in Germany, we ask the German intelligence for any information regarding this suspect and they state that this person isn't in Germany or that they have no information regarding the suspect. Yet, later on we are able to intercept information that confirms he is in the country and that the German intelligence is tracking his movements without telling us for various reasons.
Communications regarding a foreign diplomat are always relevant to another power, including allies. Every country knows this and it's why every country has a spy agency whose job it is to obtain the information. The Brits spy on us, we spy on them, the Germans spy on us and vice versa with regards to every country, its how the world works.
Now, what could be possibly concerning is the extent the NSA is surveying the average citizen of these countries. After all it is pretty well excepted that as a diplomat your communications and movements are being tracked, but your average French citizen doesn't assume some foreign power is tracking his phone calls. Now again, the NSA holds no allegiance or protection for a foreign nationals privacy interests but there is a debate concerning such sweeping surveillance of the average citizens of these countries. Again, it is pretty much agreed upon that as a politician or a diplomat your communications are fair game but for the average citizen of these countries there isn't much of an understanding there.
But again, the NSA tapping Merkel's phone is exactly the thing we want them to do, conducting surveillance on US citizens for extended periods of time without warrants is a different story.