• With: Sen. Richard Lugar, R-Ind.

    This is a rush transcript from "Your World," December 5, 2011. This copy may not be in its final form and may be updated.

    NEIL CAVUTO, HOST OF “YOUR WORLD”: All right, you do not want to be on the receiving end of an S&P potential downgrade or even on a negative watch list, but that is exactly what the folks at Standard & Poor’s have done to the countries of Estonia, Belgium, Italy, Portugal.

    S&P looking at negative implications for all of these countries, a prelude, some say, to an outright downgrading in their debt, coming as it does the same day we’ve had hints from S&P that they could be looking to put on a negative watch list, again a precursor to a downgrade, France, all the way up to Germany.

    Germany, by the way, is the only country that technically fits all the Euro rules. In other words, to be a member of that club, Germany’s the only country that meets all the criteria. So if you downgrade Germany -- I must stress that has not been done yet -- and these are second-tier countries -- no offense to the Belgians -- but it does set the stage for that.

    Reaction now, Republican Senator Dick Lugar from the fine state of Indiana.

    Senator, what do you think of that?

    SEN. RICHARD LUGAR, R-IND.: I think it’s very serious.

    And it comes right before the December 8 and December 9 meetings in which the European statesman are going to meet and perhaps have a plan that takes away a lot of the sovereignty for spending, for budgets from all the 17 countries.

    What the reaction will be with the publics of those countries, quite apart from the leaders, is still to be seen. But essentially the idea is that there has to be a discipline that makes each of these countries spend less, that has less of a social safety net for their populations, a lot of very unpopular things, with the hope that somehow this might stabilize the whole business.

    CAVUTO: Well, not before the reaper comes out of the judgment bottle though.

    Now we’ve heard that Germany and France have been added to this list of some 15 European nations on review for a possible downgrade. Just to explain how these ratings agencies work, they put up a list of countries they think are not meeting the criteria, at the rate they’re going, to maintain the ratings that they have. In the case of Germany and France, it’s AAA.

    And if they continue to go at the pace they are going, they’re not going to be AAA for long. They have not downgraded. This is just a watch for the potential that they won’t stay at the highest rating they have, if that explains it.

    But bottom line, if they come down, then what?

    LUGAR: Then it looks as all of the countries might fail in Europe and the call is likely come out in much stronger terms for the United States to come to the rescue.

    (CROSSTALK)

    CAVUTO: S&P already downgraded us. So we come to the rescue of these countries that are getting downgraded, we get downgraded all the more.

    LUGAR: I think the importance of this is that there has been very little consideration on the part of the Congress or even discussion with the president, or what have you, as to what this means for banks in the United States, for our recession.

    In other words, for the time being America’s sort of stood aloft there and said, this is too bad, the Europeans are doing so badly. But if you talk to bankers in our country, they have billions of investments in those European markets...

    (CROSSTALK)

    CAVUTO: If you were president, Senator, you would be slow to quit this help, in other words, still be part of the IMF and still offer money if and when Europe needs it? Is that right?

    LUGAR: I would like to see some discussion of this, as opposed to an administrative judgment that somehow we put money through the IMF into Europe, because that’ll just the beginning, I’m afraid.

    CAVUTO: But we look like a joke, right? You’ve even been critical of the way we handle our energy needs.

    LUGAR: Yes.

    CAVUTO: You’ve been critical of the Keystone pipeline debacle, saying we are missing a golden opportunity to shore up our energy interests. And away we go. Right?

    LUGAR: Well, that’s a very different situation.

    CAVUTO: Understood. Understood.

    LUGAR: Because, with Keystone, we’re talking about jobs in America, we’re talking about an investment of a Canadian firm of $7 billion now.

    CAVUTO: And beggars can’t be choosers.

    (CROSSTALK)

    LUGAR: We’re talking about a balance of payment situation that improves, talking about the ability to export more refined product.

    (CROSSTALK)

    CAVUTO: But the president’s talking about the environment.

    LUGAR: And I understand that. And he had a group of people around the White House two weeks ago. And so he found it convenient to say let’s do it in 2013, a very bad call. And that’s why we’ve offered a bill to do it in the next 60 days because this is very important for our country.

    But to get back to the Europeans for a moment, I’m just saying the implications of this have not really come through our debate. We are concentrating right now...

    CAVUTO: Do you think we’ll get by through the next year, though, Senator, that Europe staves off debacle?

    LUGAR: No, I don’t think so.

    CAVUTO: Oh, really?

    (CROSSTALK)

    LUGAR: That is why I think this is a serious discussion that has to occur now accompanying whatever we’re doing.