As far as my view(which is rather ignorant, hence why I would like to know and discuss more) is concerned, I'd think that some form of international agreement on spying/intelligence gathering should be formed and enforced. For example the NSA hacking to Hong Kong machines should be a criminal offense, and the same should go the other way around. This stuff should really go through the legal system and people should be punished accordingly. Just because it is some form of governmental intelligence agency shouldn't ever put it above the law.
As we have seen with the case of NSA, it is used for domestic spying too and nobody really knows for what else.
Your proposed system requires a world government with real powers of enforcement. It is not in the interests of the USA, China, Russia, India, Pakistan or France to do this. Absent wholehearted cooperation by them this cannot happen. If you got all of them on board you might be able to get the rest of the world on board.
In the world we live in, and will continue living in until there is a world government there are bad people everywhere and some of them work for other governments, who can and will protect them. This doesn't even touch on the fact that your/my/any human values are not universal, and universal law is about universal enforcement. Whoever wins the last war gets to tell everyone what to do. That's what world government is.
Yeah, fuck 'em, burn the village to the ground.
And burning the village to the ground is probably a stupid idea, which is a sufficient reason not to do it. But if it can be done and is the most efficient way of achieving the goal there are people doing it.
Service to the state, glory to the Race!
Ask not what your country can do for you, but what you can do for your country!
Also, morality? Intelligence agencies? This is realpolitik man. If we assume high level politicians resemble executives they're 20% pstchopaths. The other 80% are also quite capable of reasoning amorally about goals and power.