All Countries commit espionage. Its just a matter of who gets caught when and where. Remember, no alliance is permanent, and no-one wants to be ignorant of the world. Each country has a national interest in espionage and spying, and they just hope that it is not them next time. As well, there is certain back channel relationship that go on that are important.
US government spying was essentially unknown by the people of the US and fundamentally understood by the vast majority of people in the US government itself. The spying clearly does not reflect the will of the people of the US, and the anger and effects its had has equalled hit the people of the country.
No, Europe should not end ties with the US due to spying. The fact is, every country collects information on every other country to the extent they are able and to the extent that they think they can get away with it. This is understood by every country, however everybody is required to show mock surprise and anger when it is discovered.
During the Cold War, both the US and the USSR had spies within each other's borders; both sides knew this. Often, they would even know who they were, but they couldn't do anything about it until it became too obvious to ignore. At that point, they would make some public spectacle of the matter, and simply send the spy back home, telling them not to come back.