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The Situation Room

Interview With Tony Blair; Interview With Dan Pfeiffer; Central Banks Step In To Avert Potential Eurozone Crisis; Cain Reassesses Campaign; Gingrich Surges

Aired November 30, 2011 - 17:00   ET

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

WOLF BLITZER, HOST, THE SITUATION ROOM: And to our viewers, you're in THE SITUATION ROOM. Happening now, a mass, global effort underway to rescue Europe from a debt crisis some believe potentially, potentially, could plunge the world into financial Armageddon. We'll have complete analysis on just how effective this latest new strategy. An act of desperation some are suggesting, really is.

Plus, Britain takes dramatic steps to slash ties with Iran after a brazen attack on its embassy in Tehran. Is the west on the brink of a military intervention in the region? I'll ask a former British prime minister, Tony Blair. He's here in THE SITUATION ROOM.

And it's not the Great Wall of China, but rather China so-called under ground great wall. Ahead, the vast nuclear secrets students right here in Washington may have uncovered.

We want to welcome our viewers in the United States and around the world. Breaking news, political headlines, and Jeanne Moos all straight ahead. I'm Wolf Blitzer. You're in THE SITUATION ROOM.

A dramatic coordinated move reminiscent of the 2008 financial crisis and the infamous Lehman Brothers collapse. Stock markets soar today with the Dow surging almost 500 points on word of a mass international effort by the Federal Reserve and other central banks to rescue Europe from an economic disaster with potentially dire implications for all of us.

Let's bring in CNN's Erin Burnett and CNNs Richard Quest to break it all down what it means. Erin, first to you, from the economic experts you're talking to, I take it this was the right move, but it certainly was an act of desperation.

ERIN BURNETT, ERIN BURNETT OUTFRONT: I think that's exactly the right way to characterize it, and as you saw, the markets rejoiced. I mean, that's a big jump and that puts the market solidly above 12,000, 12,045. Still, though, that's good news. I will say this, Wolf, though, talking to some investors, I talked to some people at PIMCO, the largest bond investor in America, and they said, look, the issue here is it's down the line when you start to wonder what happens.

What the fed is essentially doing is providing money for European banks that aren't able to get dollars, and I'm talking with dollars specifically, other places. And what the fed does to do is that is essentially print more dollars and a dollar's a dollar. As they say, whether it's in Japan, Kazakhstan, or Mexico, a dollar is a dollar.

Once it's out there, it's doesn't go away. So, we are inflating the value of the U.S. currency to deal with the European crisis. For now, a good thing, but that could carry a heavy price down the road.

BLITZER: Richard, you're in London. What's been the reaction there? Do they believe this will resolve the crisis or is it simply a Band-Aid?

RICHARD QUEST, CNN INTERNATIONAL CORRESPONDENT: Oh, this has got nothing to do with resolving the crisis. This is a symptom. This is dealing with the symptoms. The situation is so worrying as Erin was saying, but what's happened is banks are refusing to lend to each other. They can't get hold of dollars, in some cases, yen or euros or pounds or whatever.

And so, the central banks have agreed to swap this money between themselves making it available, but this is just -- it's like what we saw after Lehman Brothers in the sense that the credit market seized up because of what happened to Lehman Brothers. So, needless to say what they are desperately trying to avoid this any form of panic of that help (ph).

They're making money available. Think of it this way, Wolf. They are lubricating the market. They're putting oil and grease on the sprockets and (INAUDIBLE) of the market to make sure they don't gum up and cause a bigger problem, but it does nothing to solve the actual problem itself.

BLITZER: Erin, is the U.S. at the mercy of Europe right now as some analysts have suggested?

BURNETT: Yes, I think it's safe to say that, Wolf. Now, it's also interesting. When you look at the U.S. economy today, better than expected news on jobs, much better that expected news on manufacturing, and also, much better than expected news on housing. So, the U.S economy has a little bit more strength and heft than a lot of people gave it credit for, but, and there is a big but, and that is Europe.

And Europe really is going to be what drives this train. If Europe really falls into a crisis, and you start to see Euro Zone break apart in some kind of a grim scenario, yes, absolutely. That would drag the U.S. into another recession. There is no question about it. It's not anything that anybody would refute.

BLITZER: Richard, final question to you. The European commission, apparently, gave everyone what, ten days to try to save the Euro? Is that enough?

QUEST: Another bizarre move from the European commissioner (ph). Every time they come out, they put themselves up with a self-imposed deadline. He's talking about meeting of government leaders next Friday, and he says they have ten days to come up with a solution to solve the European crisis. Take it with a pinch of salt, Wolf.

We've had more two weeks, ten days, one week, three weeks, one month, than I can remember. It happens again and again. The proof will be, next week, you and I will talk about it no doubt, but they have to come up with some way of building a fire break around the distressed countries, boosting up the bailout fund, and ultimately, making the whole thing work roughly in the future.

BLITZER: Richard Quest in London, Erin in New York. Erin's going to have a lot more for our North American viewers, 7:00 p.m. eastern, "Erin Burnett OutFront." Guys, thanks very much.

Let's turn to politics right now and the embattled Republican presidential contender, Herman Cain. Just two days after being hit with explosive new sexual allegations, he isn't offering any new clues as to whether or not he plans to stay in the race for the White House. He spoke with CNNs Jim Acosta a little while ago.

(BEGIN VIDEO CLIP)

JIM ACOSTA, CNN CORRESPONDENT: Mr. Cain, Jim Acosta with CNN. Are you vowing to stay in this race? Is that your message?

HERMAN CAIN, (R) PRESIDENTIAL CANDIDATE: We are reassessing and reevaluating.

ACOSTA: Are you staying in the race?

CAIN: We are reevaluating and reassessing.

ACOSTA: How soon until we have a final answer on your future plans?

CAIN: We'll be making a decision in the next several days.

ACOSTA: Thank you, sir.

(END VIDEO CLIP)

BLITZER: Joining us now to talk a little bit more about Herman Cain's campaign, our chief political analyst, Gloria Borger and CNNs Joe Johns. Gloria, I guess I've been asking this question to a lot of people. Can Herman Cain survive?

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: Well, I think in the short-term, he can survive. He just said in a recent interview that the first day after the most recent allegations, his money broke down a little bit. Contributions went down. Now, they're starting to go up a little bit. So, I think in the short-term, he can hang on as long as he has money.

The real question here is, though, can Herman Cain plausibly get the Republican nomination for president? And I think the answer to that is no right now. His campaign was already losing altitude before this resent charge of an extramarital affair. He was -- he's continued to lose appeal to women, generally, Republican women.

And people have raised questions about him as a president particularly on the issue of foreign affairs. He seems sort of uninformed on issues including Libya, so I think he's not likely to get the nomination. Question then is, does he want to hang on?

BLITZER: He's been at rally after rally after rally in Ohio today which doesn't have its primary until May. That's another story. Listen to what he says.

(BEGIN VIDEO CLIP)

CAIN: And with all of the mess going on over the past several weeks, they've been trying to do a character assassination on me, some of them even predicted that this room was going to be empty today. I don't think I see any empty seats in here.

(END VIDEO CLIP)

BLITZER: I know you've been reporting, Joe. Who are these people who are out there aggressively supporting Herman Cain?

JOE JOHNS, CNN CORRESPONDENT: People who don't believe the media. They see him as a victim. They see him and compare him to somebody like Supreme Court justice, Clarence Thomas, and say, look, this is just another example of the mainstream media's attempts to tear down a strong Black conservative, and they basically like him, too. Either that or these charges and allegations simply don't matter.

So, he's also played into that by saying, hey, I'm a victim, and they're coming after me. You've heard a little bit of that today. So, it's been working for him to that extent that he's been able to keep a cadre, a group of people around him.

BLITZER: You've got a great column on CNN.com that you've written about arguably, the frontrunner right now, at least, if you believe some of these polls, Newt Gingrich. Let me read a couple of sentences from what you write, Gloria.

"Any historian knows that Newt has a long personal history of self- destruction. He became famous as the architect of the GOP revolution in 1994 that made him House speaker, then infamous as a lead critic of Bill Clinton's presidential affair while Gingrich was privately involved in one of his own. He's the man calling for civil Lincoln Douglas-style debates. He's also the man who has called Obama, quote, "the most successful food stamp president in American history." How polite.

BORGER: Not exactly.

BLITZER: So, if Cain does get out of this contest, a lot of people say, eventually, he will. I assume you agree that Gingrich will benefit by kicking up a lot of those Cain's supporters?

BORGER: Oh, sure. He's already benefiting from it. I mean, obviously, the key is we've been talking about with Cain is money and can he get the money together? Can he get the campaign infrastructure together? I think those two are plausible.

He's leading Mitt Romney in polls in Florida and South Carolina already, but again, the question about Newt Gingrich as I raised in my column is, does he have the discipline to maintain a long-term presidential campaign?

Will journalists and others now start going into his personal and political history, which is long and storied and controversial, and will the Republican primary voters start giving him that second look that they've given any of these other momentary frontrunners. We're going to have to see. And then, maybe, Romney can benefit.

BLITZER: Gloria and Joe, thanks very much. We're going to continue our assessment of what's going on, but let's go to Jack right now. He's got the "Cafferty File" -- Jack.

JACK CAFFERTY, CNN CONTRIBUTOR: Totally different subject. A merry Christmas may be a lot harder to come by for this holiday season for millions of Americans in light of the ongoing slumping economy. A new CBS News poll shows one in two Americans are concerned they're not going to be able to afford the holiday gifts they'd like to buy.

One-third say they're feeling more stressed about holiday spending this year than they have in years passed. And overall, four in ten people say they plan to spend less money on gifts this than they did last year. For sure, the holidays are about much more than just gift giving, but how's this for a sign of the times, Santa Claus' are learning how to lower children's expectations when it comes to their wish list.

"The New York Times" has a great piece on a well-known Michigan school for Santa Clauses. The Santas talk about how they size up a family's finances and then try to scale back the child's gift requests. They talk about parent's standing off to the side shaking their heads no when the kids sit on their laps and ask for expensive toys.

One Santa says the bottom line is to never promise anything, while others tell the children about slower toy production at the North Pole or that Santa rarely brings everything on the list. These Santas are also learning how to answer a question they're hearing more and more often these days. Santa, can you bring my mom or dad a job?

Other children's expectations run smack into today's economic reality. One boy recently asked a Santa for only one thing, a pair of sneakers that fit.

Here's the question, in light of the economy, how will your holiday season be different this year? Go to CNN.com/caffertyfile and post a comment there or go to our post on The SITUATION ROOM's Facebook page.

BLITZER: Tough economy out there. Very, very sad. All right, Jack. Thanks very much.

Meanwhile, here in Washington, a growing political battle over whether to extend a tax cut benefiting tens of millions of working Americans. Up next, why your take home pay could be on the line.

Plus, is Europe on the brink of financial Armageddon? I'll ask the former British Prime Minister, Tony Blair. My interview with him, that's coming up this hour.

(COMMERCIAL BREAK)

BLITZER: Capitol Hill right now, where a tax cut benefiting tens of millions of working Americans is now very much on the line. Let's bring in our Congressional correspondent, Kate Bolduan, to take a closer look at the political battle up on Capitol Hill over how much Americans will take home in their paychecks in the coming year. Kate, what's going on?

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: Hey there, Wolf. Well, many up here thought that this issue, the issue of the payroll tax cut would have been dealt with as part of a Super Committee agreement, which clearly never happened. Well, now, it's become the latest fight between Congressional Democrats, Republicans and the White House.

(BEGIN VIDEOTAPE)

BOLDUAN (voice-over): In Scranton, Pennsylvania, President Obama making a hard pitch for another part of his jobs plan, the payroll tax cut.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Delivering a win for the American people.

(APPLAUSE)

BOLDUAN: So, what exactly is he talking about? A percentage of a worker's paycheck is taken out to help fund Social Security. Last year, Congress cut that tax from 6.2 percent to 4.2 percent, giving a family making $50,000 a year an extra thousand dollars, but that tax cut is set to expire at the end of this year.

SEN. HARRY REID, (D) MAJORITY LEADER: Do not take money out of the pockets of the middle class in these tough economic times, and we're listening. Democrats are listening.

BOLDUAN: Now, the White House and Congressional Democrats want to cut the payroll tax even more to 3.1 percent for employees. That would mean an additional $500 for the average family next year. They also want to extend the break to employers. Some Republicans, though have, resisted the move, arguing the payroll tax cut has not helped stimulate the economy and drains money from Social Security.

Democrats, including the president sensing a political advantage, have slammed Republicans for being inconsistent.

OBAMA: -- had sworn an oath to never raise taxes on anybody as long as they live. That doesn't square with their vote against these tax cuts.

BOLDUAN: This week, Republican leaders, for the first time, indicated they could support extending while maybe not expanding the tax break for workers.

SEN. MITCH MCCONNELL, (R) MINORITY LEADER: I think at the end of the day, there's a lot of sentiment in our conference. Clearly, a majority sentiment for continuing the payroll tax relief we enacted a year ago in these tough times, but we believe with this kind of deficit, we ought to pay for it.

(END VIDEOTAPE)

BOLDUAN (on-camera): And that's the rub, at least in part, how to pay for. Democrats want to pay for the expanded package of tax breaks through an additional tax on income over a million dollars. Republicans have refused that multiple times in the past. Republicans, though, just today, unveiled their alternative, Wolf.

They want to put -- they want to push the -- continue only the current tax breaks for individuals and want to pay for that at least in part by extending the current pay freeze for government workers. What's likely to happen, Wolf, is that neither of these proposals will win enough support in their current form as they're currently written, which means, of course, the real negotiating begins -- Wolf.

BLITZER: Well, let's follow up on that. Kate, thanks very much. The battle is clearly brewing over this payroll tax cut, the White House communications director, Dan Pfeiffer, is joining us now from the White House. It costs, if you continue for another year, this middle class tax cut, if you will, this payroll tax plan about $265 billion.

As you just heard Kate say, the Republicans say they're not going to vote for any tax increases to pay for it, which is what the Democrats want. So, what's plan B from the White House perspective assuming you want to continue this middle class payroll tax cut?

DAN PFEIFFER, WHITE HOUSE COMMUNICATIONS DIRECTOR: Well, Wolf, we'll focus on plan A here, which is a vote the Senate's going to have later this week, probably on Friday, to not just extend the tax payroll tax cut, but expand it and include small businesses. And we're focused on that.

And it's going to be a tough -- Republicans are going to have a hard time explaining to the American people why they're opposing a tax cut to the middle class because they're trying to protect tax breaks for millionaires. I think the person with the hardest job in Washington right now is the poor staffer, Republican staffer's job is where the talking points are explained that one.

BLITZER: But it's obviously just a political game right now, because you know, in the House of Representatives where the Republicans have a lopsided majority, they're not going to vote for any tax increase for millionaires or billionaires. They're going to continue their policy of no new taxes. So, this is not going to go anywhere, unless, you have a plan B.

PFEIFFER: Well, I think the question for the Republicans in the House and some in the leadership who still continue, as I understand, to oppose extending the merely extending the payroll tax cut is why they want to protect tax breaks for millionaires and taxes (ph) for the middle class, and we're going to have to see how that goes.

But I think that the real issue here is what are we going to do to create jobs and grow the economy? The president has a plan. We're pushing for that plan. The Republicans have voted down almost every element of that plan, and the question for them is, what do they want to do to help the economy?

BLITZER: So, is it just politics right now or is there something substitute for the middle class going to emerge? Is there, let me repeat the question, a plan B that the White House has? You don't have to tell me what it is if you don't want to, but is there a plan B that would allow a $1,000 savings for middle class families to continue given what you know is the political situation up in Congress?

PFEIFFER: Well, we're going to do everything we can to work with Congress to ensure that the middle class working families in this country do not get a tax increase. The president's focused on that. He's been pushing Congress on that. We're pleased that Republicans, for the first time, in the leadership have acknowledged that they agree that this tax increase would be a -- do terrible damage to the economy.

That's just not our opinion. That's the opinion of economists of all stripes, and so, we're going to work them to do that, but we have this vote on Friday, I believe, and we'll see where we go from there.

BLITZER: One final question on this one, are you willing to cut spending by $265 million additional $265 billion to pay for a continuation of this tax cut?

PFEIFFER: Well, I haven't seen all the details of the proposal Republican just put out, but I would note there's some, this is probably shocking but there's a little hypocrisy going on here. I think this is probably the first tax cut the Republicans have ever insisted on paying for in their history.

They cut taxes for the wealthiest two percent of Americans to what that be added to the deficit. In fact, I think Speaker Boehner's first act in the house majority was to change the rules so tax cuts wouldn't be paid for. So, I think it's interesting that tax cuts that affect the middle class and the working class have to be paid for and tax cuts for the wealthy don't.

That's a question they have to answer to the American people. We have a plan to pay for the tax cut. And our hope -- we're going to work with them to ensure this gets done.

BLITZER: A little politics right now. Why is the president, not so much the president, but all of his supporters, his campaign, really going, focusing all their attention right now on Mitt Romney as opposed to the other Republican candidates?

PFEIFFER: Well, I think right now, we're dealing, we're responding to a lot of attacks from the Romney campaign. We're making clear where there are differences. And, we're going to keep being aggressive about the ultimate choice in this election.

BLITZER: But you agree it's almost completely focusing in on Mitt Romney, not Newt Gingrich, not anybody else. It's just Mitt Romney.

PFEIFFER: Well, I think there are a lot of questions that Governor Romney should have to answer about his constant change of positions on a whole host of issues, and if those questions aren't being asked, by you and your colleagues, Wolf, or some of his opponents, some of the president's supporters will take up that task.

BLITZER: The DNC released this ad. I'll play a little clip by going after Mitt Romney.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Mitt's willing to say anything.

MITT ROMNEY, (R) PRESIDENTIAL CANDIDATE: We've put together an exchange, and the president is copying that idea. I'm glad he do (ph) that.

UNIDENTIFIED MALE: Obamacare is bad news.

(END VIDEO CLIP)

BLITZER: On that ad, I'm sure you've seen it. A lot of our viewers have seen it. PolitiFact suggested that a lot of the points in that ad are in their words, mostly false. Did you see that PolitiFact assessment of that DNC ad?

PFEIFFER: I did not see the PolitiFact assessment of the DNC ad. I mean, you can just -- I mean, these aren't, you know, someone else's characterizations of Governor Romney's words. They're Governor Romney's words, and I think it's going to be, it's really hard to explain how you can be for protecting Roe v. Wade and then repealing overturning Roe v. Wade.

How you can be for the Massachusetts plan, the Romneycare plan as a model for Obamacare and a model foundation, then they repealing it your first act.

BLITZER: Was his healthcare plan in Massachusetts a model for the president, the Democrats' healthcare plan?

PFEIFFER: Absolutely. Some of Governor Romney's top advisers on that plan worked with the administration to help craft a healthcare plan the president passed into law in 2010.

BLITZER: I know a lot of Democrats were outraged at the Romney ad which took certain word of the president totally out of context and distorted what he had to say, but some are suggesting that the Democrats are doing the exact same thing or almost the exact same thing in trying to rebut Mitt Romney's record.

PFEIFFER: Well, I don't think those things are even in the same neighborhood. You know, these are simply using that ad, as I've seen it, Governor Romney's words, and sometimes, only years and months apart, we're taking exact opposite sides of issues. Romney ad took something the president said quoting someone else and attributed it to the president.

And you know, I think there's very -- there are a couple of very funny spoofs on the web that showed if that is the test for how we're going to run ads, as sort of ads can be running as Governor Romney and others. So, I don't think that's a close call --

BLITZER: Final question, do you simply assume that Romney's going to be the challenger?

PFEIFFER: Wolf, I don't assume anything. This Republican primary is the craziest thing I've ever seen. When I was on your show just a few weeks ago, we were talking about new Republican frontrunner, Herman Cain who were taken the lead in the polls. We've now had Donald Trump, Michele Bachmann, Governor Perry, Herman Cain, now, Newt Gingrich. So, I don't know what's next, but I (INAUDIBLE) enjoy sitting back and watching this rollercoaster primary of this.

BLITZER: Sure you are. A lot of people are sitting back and watching it closely and enjoying it, as well. Dan, thanks very much for coming in.

PFEIFFER: Thank you, Wolf.

BLITZER: Dan Pfeiffer is the White House communications director. If you want to tweet him, @pfeiffer44, 44, that's the president of the united states, @pfeiffer44, send him a tweet. I'm sure he'd like to hear from you.

A Washington, D.C. hotel is being sued after an employee is told he can't serve certain guests. Why the hotel says the government is to blame.

An escalating tension between Iran and Britain. Will that boil over into a military confrontation? I'll ask the former British Prime Minister, Tony Blair.

(COMMERCIAL BREAK)

BLITZER: A major deterioration in diplomatic ties between Britain and Iran. The U.K. now officially closing its embassy in Tehran following an attack raising on the compound that's raising more concerns about the country's nuclear program.

France and Germany are now also recalling their ambassadors to Iran, and Iran has been ordered to close its embassy in London immediately.

And joining us now, the former prime minister of the United Kingdom, Tony Blair. Prime Minister, thanks very much for coming in. We have lots to discuss. Let's get your immediate reaction to the latest developments involving U.K. relations with Iran. A horrible blow after the ransacking of the British embassy in Tehran. What's your reaction to this?

TONY BLAIR, FORMER UK PRIME MINISTER AND QUARTET REPRESENTATIVE TO MIDDLE EAST: The behavior by the Iranian regime is unacceptable. It violates all the norms of international law, and I think it indicates the nature of the people we're dealing with. This is a regime that is exporting instability and terrorism around the Middle East.

It's trying to acquire nuclear weapons capability. Britain is one of the number of countries standing up to the regime very firmly against those things, and this is their retaliation.

BLITZER: How close is the world to seeing a major escalation, even a military escalation, involving the West and Iran?

BLAIR: Well, I hope very much that we can keep this diplomatic rather than moving it to any question of military action, but the fact is, the Iranians -- or the regime -- keep on behaving in this way. The fact is, the international community has made its position totally clear on the unacceptability of nuclear weapons capability in the hands of this Iranian regime, and what they're doing -- and I spend, obviously, a lot of time out in the Middle East. What they're doing in terms of trying destabilize situations there in Iraq and Palestine and Lebanon and elsewhere is very obviously clear.

So, I think they're making a huge miscalculation here. If they carry on behaving in this way, there is an inevitable escalation, because it's not acceptable. And they can storm the British Embassy and put ordinary civilians' lives at risk, and so and so forth, they can do all that, but the impact, they must understand, is simply to confirm people in their view that this is a regime that does not understand how it should behave.

BLITZER: So far, you've been unable to get those Israeli/Palestinian peace talks back on track. How much of the responsibility, the failure to achieve anything so far on the peace process, is the result of Iran's involvement on a negative side?

BLAIR: Well, it's always a complication. I mean, frankly, it shouldn't stop us getting this peace process back on track again. It's very important that we do it.

The fact that Israel has released the Palestinian money today is a good sign. It starts to try and deescalate the relations between the Israelis and the Palestinians and gives us something to build on. The Iranian issue is a complicating factor the whole time, but as I say, I think it's still extremely important on us to make progress and do it as fast as possible.

BLITZER: "The Financial Times" in London, changing subjects briefly, suggested this week that the Europeans are facing financial Armageddon right now. Given the enormous crisis involving the euro, the strikes on the streets of London that are going on right now, is that an accurate description?

BLAIR: Well, I mean, you can reach whatever word you want to describe it, but I would say it's the single most serious challenge of political leadership that we faced for many decades, actually, in Europe. And the problem is this -- that there are two options, both of which are incredibly politically difficult. And in the end, we've got to decide which one of them, however difficult, we're going to go with.

One option is that we put the full weight of the nations and the monetary institution, the European Central Bank, behind the single currency, that we give it, if you like, the firepower and the absolute political will to take the economic measures necessary to stand behind the single currency. That is very, very difficult, particularly for Germany.

The alternative, however, is I think worse, which is that the single currency then disintegrates. So I think this is really important.

I don't underestimate how difficult it is for the political leaders right now. It's a big test of leadership, but in the end, we need both the short-term commitment that is absolutely clear and unequivocal that the whole resources of Europe will be mobilized behind the single currency. And then, secondly, we need exactly what Chancellor Merkel and President Sarkozy have been talking about recently, which is a long-term framework of change and reform in Europe so that monetary unit is put on a solid footing for the future.

BLITZER: Does the extraordinary measures that were taken today by the Federal Reserve here in the United States, the central banks in Europe and Japan, Canada, elsewhere, does that underscore the fragility of the international economy right now?

BLAIR: It underscores the fragility, but I think it does something else. It also indicates that this type of absolutely concerted and clear commitment does have an impact, and this is all about restoring the confidence of people that the single currency will stabilize and move forward.

If that happens, then the cost of borrowing in Italy and elsewhere come down, the situation eases, and then we're able to get back to growing our economies, which, in the end, by the way, is the only way we're going to deal with this deficit reduction satisfactorily. So it's a very interesting move that's being made here, because what I think it show is that if you are prepared to come in on a concerted, strong, unequivocal basis, it does yield a result.

BLITZER: One final question. Two million people are striking in Britain right now, even as we speak. Is this a sign of things to come?

BLAIR: It's going to be tough everywhere. I mean, every government in the developed world is having to take really, really difficult decisions.

Now, you can argue about whether the decisions in this instance are right or wrong, and so on, but the fact is, there is going to be a lot of pain of adjustment as this process takes place. So, countries have got to bring down their deficits, but they've got to do it in such a way that it doesn't impair the growth of their economy, and that is a huge a challenge.

So, yes, I think we're facing over the next two, maybe three years, really challenging times in Europe, and we've got to use this opportunity of the crisis. We've got to turn it, if you like, into an opportunity and make the long-term reforms to our social programs, to our welfare state, to the way monetary union works, that we need.

BLITZER: Prime Minister, thanks very much. Good luck.

BLAIR: Thank you, Wolf. Thanks. BLITZER: One of the most expensive hotels here in Washington, D.C., tells an employee he can't serve certain guests. You're going to find out why.

And China's so-called underground great wall, the nuclear secret students right here in Washington may have uncovered.

(COMMERCIAL BREAK)

BLITZER: A major hotel here in Washington, D.C., is at the center of a new federal lawsuit. A Muslim employee claims the Mandarin Oriental Hotel discriminated against him when they barred him from serving an Israeli delegation. The hotel says it's just following federal protocol.

Our Pentagon correspondent, Barbara Starr, is here in THE SITUATION ROOM working the story.

It could be an interesting case, but what's going on?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, you know, Wolf, just think of it this way. Imagine if our employer said to us we couldn't do part of our jobs because of our national origin or our religion.

(BEGIN VIDEOTAPE)

STARR (voice-over): At Washington, D.C.'s posh Mandarin Oriental Hotel, guests often include movie stars, former U.S. presidents, and high-level diplomats. But when an Israeli delegation arrived last December, hotel worker Mohamed Arafi says he was told to stay away from the Israelis' rooms.

NADHIRA AL-KHALILI, LEGAL COUNSEL, CAIR: And they told him point- blank, it's because there is an Israeli delegation on those floors and they do not want to be served by Muslim employees.

STARR: Arafi, a U.S. citizen and Muslim, regularly enters hotel rooms to pick up dry cleaning. Arafi sued for discrimination.

According to the complaint and his lawyer, the hotel changed stories, first telling Arafi he was banned because he is a Muslim, then because of unspecified irregularities in a background check. In a new court filing, the hotel says the irregularities were the reason the State Department, citing national security grounds, banned him from serving Israelis.

JONATHAN TURLEY, LAW PROFESSOR, GEORGE WASHINGTON UNIVERSITY: That really does have the appearance of racial discrimination of the rawest kind, but the hotel is able to use the State Department, and to say that any complaint you have, you should take up with the State Department.

STARR (on camera): This case may boil down to one simple fact. Does federal law allow an employer to ban an employee in the private sector from the workplace based on national security grounds? A growing number of Muslim workers across this country say they are being singled out.

(voice-over): In a statement to CNN, the hotel insisted it had to obey the federal government and said Arafi suffered no damages, saying in part, "He worked his entire shift as scheduled, was paid for all hours scheduled to work, and performed his regular duties."

Arafi's attorney says that's not a defense by the hotel.

AL-KHALILI: They are offering services to the public, and when they offer services to the public, they cannot use their customers' preference in order to discriminate against one of their own employees.

(END VIDEOTAPE)

STARR: Now, a State Department spokesman tells CNN, "Access was not restricted on the basis of ethnicity, religion or political background." He says, "At no time did we say it was a national security exemption," and the Israelis declined to comment -- Wolf.

BLITZER: Where does this case go now? What's going on?

STARR: Well, the hotel is going the fight it and say that he has no standing, that it's a matter for the Equal Employment Opportunity Commission, which has already ruled against him, but the attorneys are saying that the hotel cannot make the case of a national security exemption like this in the hotel business in the private sector.

BLITZER: A fascinating case. You'll keep us informed.

STARR: Absolutely.

BLITZER: Barbara, thank you.

University student here in Washington are digging up secret information about China buried deep underground. We're going tell you what it is and why Beijing may be going out of its way to try to keep it hidden.

(COMMERCIAL BREAK)

BLITZER: China may be hiding a major secret about its nuclear capability deep underground.

Our Pentagon correspondent Chris Lawrence is joining us. He's got the story -- Chris.

CHRIS LAWRENCE, CNN PENTAGON CORRESPONDENT: Yes, Wolf.

Imagine a Great Wall of China,just underground. This Georgetown professor and his students have come out with a massive new report that suggests that China could have as many as 10 times the number of nuclear weapons that we think they do right now. They got their hands on secret manuals usually only available to the Chinese military and used unorthodox research methods like going to Chinese bloggers to reach their conclusion. (BEGIN VIDEOTAPE)

LAWRENCE (voice-over): While the Chinese were building these tunnels, a Georgetown professor was digging into China.

PROF. PHILLIP KARBER, GEORGETOWN UNIVERSITY: Students downloaded 200 hours of Chinese video.

LAWRENCE: Dr. Phillip Karber and his team of students have produced the world's largest report on China's tunnels. China admits they were dug by a secretive branch of its military responsible for deploying ballistic missiles in nuclear warheads.

KARBER: They had 3,000 miles of these tunnels -- 3,000 miles.

LAWRENCE (on camera): Can you put that in any perspective?

KARBER: Imagine a tunnel 30 feet by 20 feet high running from Nova Scotia to Tijuana.

LAWRENCE (voice-over): Karber is a former Pentagon strategist who used to look for weaknesses in the old Soviet Union. Based on the size of these tunnels, he says China could have as many as 3,000 nuclear warheads.

LAICIE OLSON, CENTER FOR ARMS CONTROL & NON-PROLIFERATION: The problem with the study and the way that it comes to this estimate is that the students and their professor make the assumption that because China is working on this system of underground tunnels, this must automatically mean that they have a far -- that they're working on nuclear weapons.

LAWRENCE: Policy analyst Laicie Olson and others working on arms control question the Georgetown team's methods. Olson says suggesting that China has 3,000 weapons is a huge jump from the current estimate of a few hundred warheads and could lead rival Asian nations to start an arms race.

OLSON: These all lead us to estimates that could potentially impact foreign policy in a very negative way.

LAWRENCE: But students who slogged through 200 hours of video and translated more than a million words disagree.

UNIDENTIFIED MALE: Seeing hundreds of thousands of Chinese men who worked to build these things and hearing their stories, and seeing how much effort they put into this is another issue, and it shows how important it is to the Chinese military.

UNIDENTIFIED MALE: They may provoke an arms race, even unintentionally.

(END VIDEOTAPE)

LAWRENCE: All right. No matter what you believe on how many nuclear weapons China really has, the team's work did yield some really fascinating revelations, including how China would use disguised passenger trains to move some of their long-range missiles in secret -- Wolf.

BLITZER: Chris, thanks very much.

Jack Cafferty is asking, "In light of the economy, how will your holiday season be different this year?"

(COMMERCIAL BREAK)

BLITZER: Let's get right back to Jack for "The Cafferty File" -- Jack.

CAFFERTY: Wolf, the question this hour is: In light of the economy, how will your holiday season be different this year?

Noel -- there's a good name for the holiday season -- Noel, in New Mexico, writes, "Instead of buying lots of gifts nobody really needs for the family members, each member of our family picks the name of a disadvantaged child from the Christmas tree at the mall and then buys a gift for that child. That way we each have only one gift to purchase."

Bill, in New Mexico, writes, "After the economic disaster of 2008, we shut Christmas down except for Christmas cards. In 2010, we shut Christmas cards down. We are hunkered down for the world's economic mess."

Lou writes, "Oh, look, another 'the sky is falling,' poor American people story. Over 90 percent of Americans are working, Black Friday sales set records this year, but you wouldn't know it from the doom- and-gloom media. The best gift we can all give ourselves this year is turn off cable news for a while. Instant peace on Earth."

It's a terrible idea.

Greg in Arkansas writes, "Having spent the last two Christmases looking for a job, I'll be celebrating by working the holidays this year. Fourteen months of job search and financial insecurity gave me fresh insight to realize the best things in life aren't things at all. My long stretch of unemployment was a life lesson for me, my kids, my grandkids that the happiness is having what you need and some of what you want, and being able to tell the difference between the two."

Paul in Dayton, Ohio, writes, "This year my Christmas holiday yard display will include a GOP campaign sign, prominently and proudly displayed."

And Dan in Alabama writes, "Our Christmas holiday around this house won't change much due to the economy. We plan to spend maybe a little less than normal this year."

"In our house, though, gifts are not the essence of Christmas, it's the thought of what Christmas stands for. And yes, we do still say, 'Merry Christmas.'"

If you want to read more on this, go to my blog, CNN.com/caffertyfile, or through our post on THE SITUATION ROOM'S Facebook page -- Wolf.

BLITZER: Jack, thanks very much. See you back here tomorrow.

Watch what happens when fire alarms go off right in the middle of a news broadcast. The alarming moments on set, that's coming up next, Jeanne Moos.

(COMMERCIAL BREAK)

BLITZER: Fire alarms can go off at the most inopportune moments.

CNN's Jeanne Moos reports.

(BEGIN VIDEOTAPE)

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: The things I know --

JEANNE MOOS, CNN CORRESPONDENT: No cause for alarm.

(ALARM)

ROMNEY: Uh-oh.

MOOS: Fire alarms go off everywhere from the U.N. to church --

(ALARM)

UNIDENTIFIED MALE: No play --

MOOS: But the one that went off at the beginning of the "NBC Nightly News" made news.

BRIAN WILLIAMS, "NIGHTLY NEWS WITH BRIAN WILLIAMS": And for all the bankruptcies we've covered in this grim U.S. economy, this one gets your attention.

UNIDENTIFIED MALE: Your attention, please.

WILLIAMS: You'll forgive us. We --

MOOS: The alarm was unforgiving.

WILLIAMS: Though perhaps not something special anymore.

MOOS: It went on.

WILLIAMS: Andrea, thanks. That fire alarm we assured everybody had been given the all-clear is back on.

(ALARM)

MOOS: And on.

WILLIAMS: Thanks for bearing with us here.

MOOS: Not totally stopping until about 23 minutes into the newscast.

WILLIAMS: We continue to be under no danger, it's just clearing the electronics.

MOOS: But poor Brian Williams is not alone.

UNIDENTIFIED FEMALE: Especially in some already close races here in the Northeast --

(ALARM)

UNIDENTIFIED FEMALE: Fire alarm.

UNIDENTIFIED MALE: That's the fire alarm.

MOOS: The fire alarm has been alarming anchors regularly.

UNIDENTIFIED FEMALE: -- trying to sneak into the U.S. now facing --

(ALARM)

CONNIE CHUNG, FMR. CNN NEWS ANCHOR: How do they reach --

(ALARM)

CHUNG: Oh, my goodness.

MOOS: Connie Chung was tortured by one during her very first show at CNN.

CHUNG: Uh-oh. There it goes again.

MOOS (on camera): There is one surefire TV strategy for when a fire alarm goes off when you're live on the air. Go to break!

(voice-over): Though even that --

WILLIAMS: We'll take a break, we'll be right back.

MOOS: -- didn't help Brian Williams. In his case, workers changing ventilation filters in the new studio triggered the alarm.

But sometimes it's the real thing.

UNIDENTIFIED FEMALE: -- Florida became the first state to allow citizens -- excuse me. We're having some technical problems in the studio. Let me try to get through this while we figure out what to do.

UNIDENTIFIED MALE: We're going to have to go to a break, guys. We have a fire in the studio.

UNIDENTIFIED MALE: Hit your music.

MOOS: Abandon set. A popped light was shooting sparks.

(on camera): The award for best impersonation of a fire warden goes to -- calling Shep Smith of Fox News.

SHEPARD SMITH, FOX NEWS: There's never a fire in here, but they go off. And in just a minute, some dude on, like, the 50th floor will come on, and he'll go, "Hello. This is the fire warden. Nothing weird has happened. There's a lady stuck in the toilet on the 31st floor."

MOOS: The prize for most Zen reaction goes to Stevie Wonder.

STEVIE WONDER, MUSICIAN: I'm trying to figure out a new melody.

(MUSIC)

MOOS: Alarm.

Jeanne Moos, CNN --

(on camera): Go to break.

SMITH: There may be a fire on this floor. Next!

MOOS: -- New York.

(END VIDEOTAPE)

BLITZER: Leave it to Jeanne Moos.

Thanks very much. That's it for me. Thanks for watching.

I'm Wolf Blitzer, in THE SITUATION ROOM.

The news continues next on CNN.