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Defense Secretary On Capitol Hill; Hagel: Constantly In Touch With NATO Allies; IRS Ex-Director For Tax Exempt Groups Again Refuses To Testify About Targeting; Russian Sanctions May Rattle U.S. Markets

Aired March 05, 2014 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

CHUCK HAGEL, DEFENSE SECRETARY: This economic package that we are proposing, as you all know, the OSCE has also proposed an economic package working with the IMF for the Ukraine, is a particularly important part of this. We'll continue to work those channels as well as the diplomatic channels. Mr. Chairman, I think it is clear as you have noted, Ranking Member Inhofe, in your opening statements that the events of the past week underscore the need for America's continued global engagement in leadership.

The president's defense budget reflects that reality. It helps sustain our commitments and our leadership at a very defining moment. I believe this budget is far more than a set of numbers and a list of decisions. It is a statement of values and priorities. It is a budget grounded in reality. You have noted some of that reality, Mr. Chairman in your remarks.

It is a reality that prepares the U.S. military to defend our national security in a world that is becoming less predictable, more volatile, and in some ways more threatening to our country and our interests, as was noted in Ranking Member Inhofe's statement. It is a plan that allows our military to meet America's future challenges and our future threats.

It matches our resources to our strategy, and it is a product of collaboration. All of the DOD's military and civilian leaders were included. The chairman, the vice chairman, the service secretary, service chiefs, all of our people. We value their leadership, their input, our senior enlisted input was important.

As we all know, America has been at war for the last 13 years. As we end our second war, our second war of the last decade, our longest ever. This budget adapts to new realities and physical constraints while preparing for the future.

WOLF BLITZER, CNN ANCHOR: The defense secretary, Chuck Hagel, now outlining the president's new budget for the Department of Defense. His own budget was released last week. He is making the case now before the Senate Arms Services Committee, but also speaking out about the crisis in Ukraine.

I want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer in Washington. The strong statement from Chuck Hagel. You just heard him outline some reassuring steps that the U.S. is going to take to friends and allies and Eastern Europe right now in the face of what the United States sees as a Russian invasion of Crimea, which is part of Ukraine.

Let's bring in Barbara Starr, our Pentagon correspondent and Retired Brigadier General Kevin Ryan in Boston. But first, Barbara, to you, this is supposed to be an appearance by the secretary of defense outlining the new DOD budget, but he used the occasion to outline some new steps the U.S. military is taking in the face of what the U.S. sees as Russian aggressive steps in Ukraine.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Absolutely, Wolf. You know, the administration has been so adamant that this is all a diplomatic effort. It still is. But for the first time now, we are seeing the U.S. military and the Pentagon get involved by supporting the NATO allies, especially in Eastern Europe. The countries that are now very anxiety ridden, the U.S. believes about what Russia is up to.

A lot of very deliberate words from Hagel. Let's explain to people behind the scenes what he is really talking about here. First up, Poland. Poland had gone to NATO earlier this week and said it had concerns. Now, the U.S. has responded. There will be what the Pentagon says is an augmentation of beefing up of the U.S. Air Force presence in Poland.

There is a small team there now. They will add to it. They will extend it. It will stay there for a while now. This team allows U.S. and 16 fighter jets and C-130 aircraft to move in and out of Poland. It hopes with all of that, it is a bit of a beachhead if you will.

Next door to Russia, of course, it is a signal of support for Poland. A country over history that has always had concerns about Russia. Then, second, the secretary talked about something called the Baltic air police mission. Let's leave that map up and explain to people what we are talking about.

The Baltic states, Lithuania, Latvia, and Estonia on Russia's western flank, these are very small Baltic countries. They do not have their own air forces. The U.S. through NATO and other NATO countries will now increase their effort to help defend those air spaces. They do it in a number of ways. Sometimes it is done, indeed, by flying the aircraft over the Baltic air space.

These are countries again now on Russia's western flank where the U.S. Military is making very clear it will provide security reassurance, if you will. What this really does, Wolf, is it extends all of this into the NATO organization. NATO formed after World War II to counter the old Soviet Union, Russia, Putin, the follow-on to the Soviet Union in his approach to security matters, the U.S. believes.

So now, NATO, proving that through the United States, it can take measures to reassure those countries in Eastern Europe that have some anxiety about what Russia is up to -- Wolf.

BLITZER: Largely symbolic steps, but for these Eastern European countries, important steps, political statement of support. General Ryan, stand by for a moment. I want Jim Sciutto, our chief national security correspondent, to weigh in as well. These are largely symbolic steps, Jim, but they will be seen certainly by the Russians as provocative steps at a minimum and could cause Russia to react?

JIM SCIUTTO, CNN CHIEF NATIONAL SECURITY CORRESPONDENT: I think so. You and I have been talking about this a lot the last few days that, you know, it is often said, there are no military options on the table. In actuality, there are options on the military catalogue on the table. This is what you are seeing here. Sending those signals of support to those NATO allies on the western border of Ukraine.

The Baltic states up in the north. It was subtle moves. It is not boots on the ground in Ukraine. No one is firing any slots. Extending an air mission in Poland, a few more aircraft to the Baltic States. A lot of meaning attached to that. Obviously, these have been calibrated so as not to spark an angry reaction from Russia. They are very settle.

They are things that were existing that are being extended as opposed to new things entirely. That said, considering the state of Russian leadership right now and how they behave so far in the very tough message that Putin is clearly trying to send in Crimea. You know, it is possible to spark a reaction from Russia.

It comes at a delicate time because remember as we were talking about last night, the real emphasis from the administration now is on de- escalation opening a path to an off ramp. Giving Putin, in effect, a way out. That is why, today, as you have the two sides, the military and diplomatic moves.

That's why you have today Kerry and his British and French counterparts talking about sending international observers into Ukraine, which is, in effect, a bone thrown to the Russians. You say Russian -- ethnic Russians are under threat there, we are going to send observers there to see it that's really true.

BLITZER: Let's bring in Retired Brigadier General Kevin Ryan into this conversation. What do you make of these announcements, these steps that the defense secretary, Chuck Hagel just put forward before the Senate Armed Services Committee, General?

BRIG. GENERAL KEVIN RYAN, U.S. ARMY (RETIRED): These are good first steps in reassuring our allies and partners in Europe. I think everyone has made that point well. What we also have to do is reflect and look at our basic underlying assumptions that over the last 24 years, have been encouraging us to shift and rebalance to the Pacific and to Asia.

We may want to reconsider the relationship with Russia may not be as friendly or cooperative as we thought it was going to be. That could make some minor changes in adjustments in how we go about allocating forces and pending our resources.

BLITZER: Would you anticipate the Russians in reaction to what Chuck Hagel just announced would take their own steps, Eastern European NATO allies and the U.S. might see as provocative? RYAN: I think you could find headlines in the next few days, proclamations and even maybe a couple of concrete steps. But the reality is that the Russian economy is not prepared to match the west or the United States in step for step in any kind of military resource allocation, especially if the west is trying to make a statement to Russia. Yes, we could see some headlines. I would not think that anything that they could do would be a substantial threat to the United States or NATO.

BLITZER: The key question, General, is, could this get out of control? The U.S. takes one step together with NATO allies. The Russians respond with their own steps and then the U.S. and NATO allies escalate further. Is that scenario likely or will cooler heads prevail?

RYAN: I think in some ways the situation is already out of control with what Putin has done in Crimea. This is what strategists and people in the Pentagon are planning against to make sure if it does happen that way, we are prepared for it, but I don't think it is likely.

BLITZER: All right, General, I want you to stand by, Barbara, Jim Sciutto. I want to go to Elise Labott, our foreign affairs reporter. She is traveling with the secretary of state. Now she is joining us from Paris. There is a lot of diplomacy underway when we know the secretary of state has been in contact, at least, on the phone and presumably, is going to meet with Sergei Lavrov, the foreign minister of Russia. Right, Elise?

ELISE LABOTT, CNN CORRESPONDENT: Supposed to later this afternoon. The foreign minister is meeting with the French foreign minister, Wolf. The French along with the British and the U.K., U.S. all trying to get Russia in the same room with the Ukrainian foreign minister as part of this diplomatic off ramp talking about getting a dialogue between the Russians and Ukrainians. Secretary Kerry met with this so-called Budapest group. Putting out this statement calling for international monitors.

I want to read a little bit of that statement. These three governments, reaffirm the importance of protecting the rights of all Ukrainian citizens irrespective of their ethnicity or spoken language. This, as Jim was saying, is a bone to Russia, saying, listen, we recognize that you have a lot of interests in Ukraine. You are very concerned.

If you want to address those concerns, let's get international monitors in. This could address your concerns. They want him to sit down with the Ukrainian foreign minister. That minister flew from Kiev to Paris and told reporters he would like to sit down with the Russian foreign minister today.

BLITZER: The issue here. I don't think there is a problem with Sergey Lavrov, the foreign minister of Russia meeting with the secretary of state, John Kerry. The question is, will Sergey Lavrov meet in a three-way meeting since Putin, the Russian president, has made it clear. They don't recognize this current Ukrainian interim government. If they were to meet with the foreign minister of that government, wouldn't they, in effect, be recognizing this government as opposed to the ousted president, which they still claim is the legitimate government of Ukraine.

LABOTT: That's why they want to get the U.K., the British, the French all in the same room calling it a so-called coordination group. Not trying to sign any agreements or anything. Making it very informal and trying to get some kind of dialogue going, because no one wants this to escalate any further. If they get them in the same room, they can talk a little bit about this. Maybe that's a face saving way for the Russian foreign minister.

We have to be clear. We do not know yet whether he is going to attend this meeting. He is still meeting with the French foreign minister. A lot of pressure being put on Sergei Lavrov to sit down, at least talk. Let's get a dialogue going -- Wolf.

BLITZER: Elise Labott traveling with the secretary of state. We are standing by to hear from John Kerry. Live coverage of his remarks. We'll see if that meeting takes place with the Russian foreign minister. We will see if he agrees to meet with the Ukrainian foreign minister who flew from Kiev to Paris on the secretary's plane. Elise Labott, stand by. Much more coming up.

A tense moment here in Washington that just occurred on a totally, totally unrelated moment. A tense house oversight hearing involving an agent of the IRS, all sounding very familiar. I want to play this clip.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: My counsel has advised me that I have not waived my constitutional rights on the filth amendment and on his advice, I will decline to answer any questions on the subject matter of this hearing.

(END VIDEO CLIP)

BLITZER: We'll go back to the hearing. We are hearing about Ukraine right now. Here is General Martin Dempsey, the Chairman of the Joint Chiefs of Staff.

GENERAL MARTIN DEMPSEY, CHAIRMAN, JOINT CHIEFS OF STAFF: During our conversations, we committed to developing options to provide those assurances and deter further Russian aggression. We agreed that together we must help shape a path back to the sovereignty and security of all the people of the Ukraine. Simply put, the allies stand together.

As you know, I recommended suspension of our military to military with the Russian federation. The nature and extent has left us very little choice. I have also directed European command to consult and to plan within the construct of the North-Atlantic Council.

Obviously we want to provide NATO's leaders with options that stabilize and not escalate tensions in the Ukraine. We are only one part of that. I spoke with my Russian counterpart. I conveyed to him the degree to which Russia's territorial aggression has been reputed globally.

I urged continued restraint in the days ahead in order to preserve room for a diplomatic solution. Russia's action reminds us that the world today remains unpredictable, complex and quite dangerous. We cannot think too narrowly about future security challenges nor can we be too certain that we have it right. The world will continue to surprise us, often in unpleasant ways. That was how my last week ended.

It began for me in Afghanistan addressing the security challenges that remain in that region and where I went to gain first-hand appraisals from our troops and from our commander's. As always, I left there inspired. They remain fully engaged on the mission set before them. They continue to build the institution of the Afghan national security forces, which given the right political structure around them, has the ability to sustain the fight.

We'll be prepared to support a variety of options over the next several months as our relationship with Afghanistan moves forward. This includes the option to draw down by the end of the year, if that's the decision made by our elected leaders. Meanwhile, our joint and NATO team has much work to do this year. They are ready for it.

The global commitments of the Joint Force are not shrinking. Neither are our global security threats. The most likely emanate from violent extremist groups and ungoverned spaces. We can never eliminate the possibility of state on state conflict. We must remain ready.

BLITZER: That's the chairman of the Joint Chiefs, Martin Dempsey, making it clear that all options are on the table as far as deploying and keeping a U.S. military presence in Afghanistan following the supposed complete withdrawal at the end of this year. He did outline some additional steps, the U.S. military, NATO allies and North American console are getting ready to take to assure friendly countries, NATO allies, that the U.S. is there, that NATO is there to help them in the face of what you just heard, general Dempsey call, Russian aggression in the Ukraine.

We are going to get back to that story. A lot more coming up. Major developments and we are getting ready to hear from the Secretary of State, John Kerry, himself. We just -- I just wanted to quickly update you on what happened, an important moment up on Capitol Hill. A real bitter exchange between Republicans and Democrats involving an IRS official, Lois Lerner, who appeared before the committee and pleaded the fifth.

Our correspondent, Lisa Desjardins, has been watching what's going on. Tell us what happened. She is refusing to answer questions, citing her constitutional right. Then, it got very testy between the chairman and the ranking Democrat on that committee.

LISA DESJARDINS, CNN CAPITOL HILL REPORTER: Some incredible political theater, Wolf. I was right there in that room. Lois Lerner, who has been at the center of this IRS targeting investigation, again, did refuse to testify, citing her Fifth Amendment right. Her lawyer had told CNN she was going to do that. After she expressed that again and again to Republican questions, committee chairman, Darrell Issa, a Republican, adjourned the hearing after he asked for than a dozen questions to which she gave no response except to plead the fifth.

Immediately after he went to adjourn the hearing, his Democratic counterpart, Elijah Cummings of Maryland said, I would like to speak. I would like to ask a question. Issa said, the hearing is adjourned. Cummings tried to go to procedures. He said, I have a procedural question. Issa gave him a chance to ask the procedural question. It was more of a statement. Wolf, the issue here is that Cummings' mike was cut off. He was not given the opportunity to speak.

Afterward, I asked Chairman Issa, why didn't you give your Democratic counterpart the option to speak? It was a major investigation about the IRS and the Obama administration. Issa said, we got our answers, Lois Learner wasn't going to talk. There were no more questions to be asked and I didn't feel that Elijah Cummings was going to do anything, but give a broad statement. There are lot of ways to look at this.

This speaks to this particular IRS hearing, something that's been hovering for years. Republicans would like to move the ball on Lois learner obviously not helping them, not cooperating with them, pleading the fifth. This is about the tensions here in Congress. It is so rare. I can't stress enough to see a member of one party, a chairman, shut down a hearing as a ranking member from the other party wants to speak.

This is something that sort of took our breath away. It is something that is incredibly rare and speaks to the bubbling conflicts here in Washington right now.

So impolite to Elijah Cummings, the ranking Democrat. He wanted to make a statement. The chairman, Darrell Issa, wouldn't let him make a statement. Early earlier on Sunday, he thought Lois Lerner would testify. Her lawyer said she would continue to remain silent. How and why did he think she was going to testify?

DESJARDINS: It is fascinating. Issa and sources from this committee had told us that they had been told by Lois Lerner's lawyer that she would testify. However, that same day, that same lower told us she would not. Clearly, there is some kind of communication issue here, whether it is from Issa's perspective. His staff said that Lerner changed her mind. Lerner's attorney has always told CNN she would plead the fifth. It is one of those great question marks. It has led to this great drama today and a lot of confusion. We are still not sure why Issa thought she would testify. He was very clear in saying that's what he heard.

BLITZER: Let's not forget. At the core of all of this is the allegation that Lois Lerner and others inside the IRS, they deliberately, inappropriately and perhaps illegally targeted conservative organizations and tea party organizations for special scrutiny. That's the allegation. The suggestion by a lot of Republicans is that this came from higher levels within the Obama administration. So that's at the core of this dispute. Tensions clearly underlined today at this extraordinary hearing. Lisa, thanks for that explanation of what happened.

When we come back, we'll get back to the breaking news out of the crisis in Ukraine. On the ground in Crimea, Russian and Ukrainian troops facing off. What one troop witnessed and why he thinks the tensions to have a negative impact on the Russian president, Vladimir Putin.

(COMMERCIAL BREAK)

BLITZER: Crisis in Ukraine. We want to once again welcome our viewers in the United States and around the world. I'm Wolf Blitzer in Washington. Let's turn to a potential case of revenge politics. Russian lawmakers are not going to allow a bill that would allow Moscow to confiscate the assets of American and European countries there. The Russian retaliation could have a small impact on the United States.

The Russian could have a relatively small impact on the United States. interests make up 1 percent of American trade. Europe, on the other hand, has far more to lose since the post Soviet area. In the first nine months of last year, the European Union imported more than $200 billion worth of goods from Russia.

CNN's Phil Black is our correspondent in Moscow. Is there really an appetite for sanctions that could end up punishing both sides, the Russian side, the European side, including the United States?

PHIL BLACK, CNN CORRESPONDENT: Wolf, at the moment, this is a draft before Russia's parliament. It is unclear how much support it has. This sort of move does fit recent history. Recently, when Russia has felt it is being harassed unfairly by the international community, it's response is often to lash out, even harder, sometimes coming back in a completely different direction with issues that don't automatically seem relevant to the precise issues at the center of the conflict. The clearest example we have seen recently was when the United States Congress passed the act to punish human rights abuses.

Russia was outraged and responded by passing legislation which made it illegal for American families to adopt Russian orphans. Many thought it was Russian orphans that were paying the price in that dispute. From the point of view of Russian politicians, it made the point. It said that Russia is a strong, independent country and other countries should butt out. In this case, in the event that Europe, the United States do proceed with economic sanctions. You can certainly expect a very robust response of some sort from Moscow.

BLITZER: The west take certain steps. The Russian have shown in the past. They will retaliate, the steps of their own. Phil Black in, thanks very much. As we just learned from other U.S. from the Russia, they may not necessarily take a huge hit from the Russian sanctions. That isn't to say American markets won't be rattled at least in some ways.

Here to sort out what we should expect and what we worry about if that were to happen, let's go beyond the hype. Joining us right now are chief business correspondent, Christine Romans and Monica Mehta, the managing principal at Seventh Capital Invest. We have seen a lot of volatility this week and last week. Should investors be concerned over this crisis involving Ukraine?

CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: Absolutely. We are one headline away from a wild swing in markets. You are talking with bond, oil, stock markets and the way they interact. Remember, when you look at the trade between the European Union and Russia, over the past 20 some years, it has really ballooned. These two economies or areas have become much more integrated.

You have European, French, Italian banks, Citibank, a big multinational operates there. Big car companies, GM has a plant in St. Petersburg. When you have the Russian president stepping in his press conference yesterday, he said, very clearly, look, anyone on your side who is talking about sanctions, remember, these things cut two ways.

We would be hurting each other. People would both be losing. That's really serious and true. If you have the Russians turning around and seizing properties of companies, that could be devastating for market sentiment. That's a real issue here. For years, corporate CEOs have been wooed into doing business in Russia. Here, you have these sorts of politics which are telling them, wait a minute. We should have been more careful.

BLITZER: Monica, what's your advice to your client under these roller coaster circumstances, shall we call them?

MONICA MEHTA, MANAGING PRINCIPAL, SEVENTH CAPITAL INVESTMENT: It is to understand there is a difference between a standoff scenario and a greater war scenario. Looking at instability for the market and the market doesn't like instability. In the near term, as Christine mentioned, gas prices could go up, natural gas and oil.