Even the CCC agrees that wiretapping is necessary for catching criminals. They actually warned the police about the upcoming disclosure so that running investigations would not be jeopardized.
The issue here is that this malware obviously exceeds the limits that the German Federal Constitutional Court explicitly set for such tools.
For example, anyone can upload and run arbitrary files on the victim's computer - prosecutors but also anyone who knows the computer's IP address. This allows tampering with evidence.
Additionally, not only actual communication is captured but everything you do in a browser window, e.g., writing your diary on Google Docs. Obtaining such information would legally require a search warrant. This means that police can escalate their privileges without judicial oversight.
And finally, all captured information is sent to a server in the USA, clearly outside of German jurisdiction. Weakly encrypted. Together with the previously mentioned problems, this would allow the USA to ask the German police to monitor a suspected terrorist, then siphon off the wiretapping results and even place incriminating data on the victim's computer. Of course, the CIA would never do such a thing.
The question here is not whether the police may use wiretaps, the question is whether the police [1] may systematically break the law and lie to the public and courts about what they actually can do.
[1] of course, the police in this context means only certain representatives and departments.