Does Europe spy on Americans too?

This is a rush transcript from "Journal Editorial Report," July 6, 2013. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," the administration delays a key component of the Affordable Care Act. And a new report says that healthy individuals could see their premiums skyrocket. Is ObamaCare unraveling?

Plus, federal student loan rates double as Congress fights over a fix. Who is blocking a common-sense compromise?

And European leaders voice outrage over leaked reports of Americans spying. Should the U.S. bug its allies?

Welcome to the "Journal Editorial Report." I'm Paul Gigot.

The Obama administration said this week that it will postpone a key element of its Affordable Care Act until 2015, giving employers with more than 50 full-time workers another year to provide health insurance coverage. The individual mandate, however, is still on track for 2014. And a new Wall Street Journal analysis says that healthy consumers could see their insurance rates double, maybe even triple, under the exchanges set to open on October 1st.

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; editorial board member, Joe Rago; and Washington columnist, Kim Strassel.

Joe, you have been predicting something like this for some time since you cover health care for us. Should we welcome this delay?

JOE RAGO, EDITORIAL BOARD MEMBER: Well, I think there are a few things. This indicates that they have created an apparatus that's so complex that they can't even force -- enforce it themselves. I also think that it is an admission that the critics were right. You know, lot of low- wage businesses, restaurants and hospitality, grown businesses were starting to call themselves the 49ers because they were coming right up to the edge of the mandating --

GIGOT: 50 employee maximum. This isn't leading to more health insurance.

RAGO: Right. And they were saying not -- this isn't leading to more health insurance. It's leading to fewer workers.

GIGOT: And the way this would work is, if have you more 50 employees and don't provide health insurance, you have on pay $2,000 per employee to the federal government. This fee will be -- will be waived.

RAGO: Fee will be waived for one year.

GIGOT: One year.

RAGO: In terms of -- I think businesses make decisions over the long term so is this going to change sort of the economic prospects of this? I -- I don't think so. But it is a very significant political concession.

GIGOT: Kim, on that political point, the administration slipped this out in a blog post this week. The president, of course, had had month fingerprints on it. But what -- inside of the administration, this must have been a source of enormous debate because it is embarrassing.

KIM STRASSEL, WASHINGTON COLUMNIST: This hit Washington like a bomb. And it surprised one more than Democrats and it has caused a great deal of consternation because you have to put this in context, Paul. This is happening just as the administration was holding this series of outreach meetings Democrats in Congress and encouraging them to push to get momentum for this and sell this to their constituents back home. And now this. And you -- you -- this is now, by the way, the eighth element of ObamaCare that has had some bit of a delay put on it. So you hear -- feel a real sense of pier down here among the Democratic Party and that they are going to be headed this fall into next year's midterm elections with a liability from ObamaCare and that could make 2010 look like a cake walk.

GIGOT: Dan, there is a legal element in this, too. I read the statute. It says right there in black letters that this employer mandate will be implemented in 2013 -- December 31, 2013. Can they invade Congress and just do this on their own discretion?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, in -- in theory, they should not be able to do that, Paul. But then there is the problem of reality. I mean, I think the agency at -- well the agency at the center of this is our old friends at the internal revenue service.

GIGOT: Law isn't reality?


HENNINGER: The law is reality but the reality is that the -- we have known for some months that the IRS was struggling to create an enforcement procedure to do this. This was announced by Treasury --

GIGOT: Right.

HENNINGER: -- which suggests very strongly that IRS told the administration we are not ready for the reporting requirements and enforcement procedures. We just don't have it. So the law not withstanding, you have the practicality of an agency that says -- I cannot do -- we cannot implement.

GIGOT: So how should Congress respond, Joe? Particularly, Republicans? Remember, the employer mandate now delayed here but the individual mandate not delayed. So businesses get a break. Individuals, no break. Should Republicans say, look, I want to extend one part of this, delay it, you have to do another part, too.

RAGO: Right, especially if this is illegal, as it appears to be. I think they should offer to say, well, we will give you the year. But let's delay all sorts of other things as well.

GIGOT: Right.

RAGO: And -- essentially, create a constituency for not having these rules imposed on businesses and individuals.

GIGOT: Kim, do you think that's what Republicans will do?

STRASSEL: I think they will, although there will also be a -- there will be some pushing to -- one of the arguments you have been hearing down here among Republicans is perhaps the best political strategy for dealing with ObamaCare is to simply allow to it collapse under its own weight. And so you will probably hear that argument, too, as now that the administration is admitting that it is not prepared to do this and the individual market is going to be an even bigger challenge, you will probably have some Republicans also saying that let's just see what happens.

HENNINGER: Well, the laws are encountering real problems in the states as we speak. This week, the Ohio Department of Insurance announced the individual premiums would probably rise an average of 88 percent. You have watchdog groups in California that support ObamaCare that are saying the rates being posted by the exchanges are too high. And they want actually an initiative put on the ballot to create a Proposition 13-type thing that would make it impossible to raise rates above a certain level.

GIGOT: And they're recruiting -- trying to recruit the NBA and the NFL and sports groups to be able to plead with their fans -- a lot of them are young males -- to be able to sign up for this thing. When it is probably not going to be in their self-interest to do so, because of the premiums that are going to explode for healthy people in order to finance the mandates that are supposed to help so many others.

RAGO: Right. This -- they are acting in the direct contravention of the self-interests of their viewers. This is like the AARP lobbying for some kind of special tax on Boca Raton and Scottsdale.

GIGOT: They are afraid that the young -- young people who are healthy and think, Joe, no offense to you, you will live forever. You won't --




GIGOT: That they won't sign up for health insurance because, look, they have relatively little discretionary income, so rather than pay health insurance, particularly, if it is a big policy that they really don't need, coverage they don't need, they will take that money and spend it on other things, pay the fine. How much is the fine, by the way?

RAGO: $95, Paul.

GIGOT: For a year?

RAGO: For a year.

GIGOT: $95 a year?

RAGO: Right.

GIGOT: They are not going to sign up, Joe. You are going to --


They will pay that fine.

RAGO: No matter how many pro-athletes are out there imploring them to sign up, it is just too clear cut.

GIGOT: This program seems to be headed for the rocks.

All right. Still ahead, student loan rates double after Congress fails to reach a last-minute compromise. There are some Senate Democrats standing in the way of a solution even President Obama supports.


GIGOT: Student loans doubled this week as Congress left town for the July 4th recess without reaching a deal. Rates on Federal Stafford Loans rose from 3.4 percent to 6.8 percent on Monday after a group of Senate Democrats refused to back a bipartisan compromise that would have prevented them from doubling, but would have tied them to market forces, something that President Obama supports.

Assistant editorial page editor, James Freeman, joins us with more.

So before we get to the doubling of the rates, there was another report out this week that said that -- recently, that said that these loans could cost -- default on these loans could cost taxpayers big.

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Big losses coming. What's interesting about it is Democrats who want to keep rock-bottom rates for kids, their main argument is the government will make a fortune on the loans, they're making billions off of kids and so we ought to keep the rate low. Well, the Congressional Budget Office, Congress' official scorekeeper, said actually, even though we officially claim that this program makes $184 billion over the next decade, actually if you did real accounting, it will lose $95 billion.

GIGOT: The kind of accounting that if private-sector people did -- didn't do, they would be in jail for fraud.


FREEMAN: You would go to prison.


Absolutely a clear fraud. It is an interesting issue because rarely do you see CBO say, in such plain language, that this political fraud is occurring. And we will see if it has any impact on the congressional debate, but judging by recent comments, this myth that this is some big money winner for the taxpayer going forward persists.

GIGOT: Student debt and now a trillion dollars, over a trillion dollars. Defaults are almost certain. Dan, what about this debate over the doubling of the rates? How do you think that -- I'm surprised to see House Republicans on the same side, more or less, as President Obama, against Senate Democrats.

HENNINGER: Well, President Obama's budget office was the people who originally flagged this was going to happen. But now the Democrats are insisting on pushing these rates back down. They tried to work out a deal in Congress but Harry Reid wants to keep the rate back down, I guess, around 3 percent. Elizabeth Warren, our financial expert, wants it set at .75 percent.

GIGOT: The federal discount rate.

HENNINGER: The federal discount rate.

GIGOT: Which essentially means --

HENNINGER: A giveaway.

GIGOT: Free money. That's right.

HENNINGER: So your kid goes to college, but the five people down the street, who aren't going to college, they get to pay for your kids' college loan.


GIGOT: How is this going to turn out, Kim? Do you know? How do you think?

STRASSEL: Well, you know, as Dan alluded to, the thing that happened here is President Obama, someone decided to do some math and figured it out the federal government was going to be in big trouble as borrowing costs rose, so they put into their budget this idea of tying rates to the market. Now, this has long been a Republican proposal and you have had this backlash from Democrats, this odd situation where they have been at odds with the White House. But I think that with the White House pushing for this, Republicans pushing for this, they are losing this battle. You are likely to see a compromise, which interestingly will probably fall along the lines of what has long been a Republican proposal that these rates need to have some basis in market reality.

GIGOT: This is a real switcheroo from last year, James. During the campaign --

FREEMAN: Yeah, it's kind of amazing.

GIGOT: -- President Obama used this issue, the student loan issue, the 3.4 percent to flog Republicans and Mitt Romney, and say you don't care about college, kids, you don't care about students. Remember those scenes with all those --


GIGOT: -- students in the back and came out and voted for them in -- in big numbers.


FREEMAN: Suckers.


But it is kind of amazing. He made it the centerpiece of his campaign, presenting it as a moral issue that you can't let he is loan rates go above 3.4 percent. And he still basically doing the media events with college kids. They haven't figured out yet --


FREEMAN: -- it not the whole planet anymore. And now he's saying, yeah, tie it to the 10-year treasury. He has some difference with the House --


GIGOT: That's better for taxpayers in the long run.

FREEMAN: It is. Yes.

GIGOT: No question about it. If rates go up, as they have been doing, then the tax -- if the -- if the loans on -- the rates on student loans are artificially set, somebody has to pay the difference, and that's dear old Henninger and dear old Freeman and the rest of the taxpayers.

FREEMAN: The average taxpayer pays $100 billion a year on these things. So if it came to pass they were losing on the interest rates on every one, the cost could be massive. But you know, a glass half full. It looks like whatever deal comes through with this, they are not going to give the president the other thing he wants, which is an expansion of what they call a pay-as-you-earn program, which basically gives people lots of options to avoid paying on time and in full.

HENNINGER: Well, lot of kids are learning the old softball, "We are the government and we're here to help." And this is the help they are getting from them.

GIGOT: Kim, this is -- there's no question as well, is there, that this -- these subsidies, which is what they are, for tuition, while they do help defray the cost of tuition, end up, at least in the short run, end up driving up the cost of tuition because colleges can raise their own prices. And I saw a report recently that tuition has gone up something like 7 -- more than 7 percent a year since 1978. That's an astonishing figure.

STRASSEL: Yes. I mean, it goes back to this idea, Paul, that there is no problem that the government can't make worse.


And, you know, this sort of the source as well as the president's political problems and why you saw this budget proposal in first place. Remember, the government is now the originator of 90 percent of student loans. They decided to take this industry over. What that does, as you say, put taxpayers on the hook. And the president and Democrats no longer have a private sector that they can squeeze when they want to try to keep these loan rates low and put pressure on the private sector to deal with default and absorb those losses. They have had to be a lot more careful. And this is leading to some of their political problems.

GIGOT: All right. Kim, last word.

When we come back, European leaders blast the U.S. after leaks reveal we are spying on our friends overseas. Should you be outraged or reassured?



PRESIDENT BARACK OBAMA: I guarantee you, in European capitals, there are people who are interested in, if not what I had for breakfast, at least what my talking points might be should I end up meeting with their leaders. That is how intelligence services operate.


GIGOT: That was President Obama at a press conference in Tanzania earlier this week responding to leaked allegations that the U.S. spied on its allies. The German magazine "Der Spiegel" reported last Sunday that the National Security Agency bugged European offices and infiltrated the E.U.'s computer networks. The news was met with outrage abroad, with German chancellor, Angela Merkel, calling it unacceptable and French president, Francois Hollande, demanding it stop immediately.

Wall Street Journal foreign affairs columnist, Bret Stephens, joins us with more.

So full outrage, real outrage? How do you see it?

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: There's gambling going on at Rick's Place. Look, it is a combination of incredible cynicism by European leaders, who know perfectly well that this goes on all the time. They do it themselves. And incredible naitivity by a European public that doesn't understand how commonplace this sort of thing --


GIGOT: So why the -- why the outrage if -- if the leaders know what's going on?

STEPHENS: A lot of it is simply political. For instance, Angela Merkel was facing federal election in September. She wants to be re- elected. This has generated tremendous amount of publicity in the wake of the Snowden revelations. And so she saying this is unacceptable and must stop. What's she supposed to say? Well, we all do it.

GIGOT: Don't they like to think also it is a big-bully America, you know? This is -- this is the way America behaves. Isn't it part of that?


STEPHENS: There is no question that there is a great deal of anti- Americanism at work here. One person at the European parliament said this makes George Orwell look like nothing, talked about Orwellian -- inadvertently being Orwellian herself. So, yeah, there's no question that there is a sense that this is Big Brother America monitoring all communications all the time.

GIGOT: But do we really need to spy on our allies?



HENNINGER: Let's knock down the idea that this is just all crazy spy versus spy activity. In 2000, we went through this when the U.S. program called Echelon came to the surface. The idea was the United States was stealing European technology. There are basically two reasons why we do this spying. The first one is to see whether European countries are bribing foreign officials for contracts in countries like Saudi Arabia, as they have. The second and perhaps more important is to look at technology transfers from Europe to countries like Iran, formally it was Iraq, that could be used to build nuclear defense plans or other kinds of weapons of mass destruction. Because there has been a lot of evidence over the last 15 years that that has happened. And so if you are imposing sanctions on a country like Iran or like North Korea, you want to make sure that there aren't European companies leaking or trying to break through that system.

GIGOT: We also know that the al Qaeda cell that executed 911 operated out of Hamburg, Germany. And had we been listening, and properly, we may have prevented that.

STEPHENS: Right. It is reasonable to wonder what exactly -- what sort of information we are getting when the European Commission issues a regulation warning that water doesn't necessarily prevent dehydration, which, in fact, they did --


-- two years ago. But, look, just this week, Reuters had a story out of London that the Ecuadorian foreign minister has discovered that their embassy in London, where Julian Assange, the WikiLeaks figure, that that embassy had been bugged, presumably, by British intelligence. This is the stuff that governments do. So this -- this sort of sense like, oh, my goodness, how could they possibly be doing this, is a little bit contrite.

GIGOT: We sentenced Jonathan Pollard to, I guess, a life sentence, when he was giving secrets to Israel, our allies.


GIGOT: So we obviously didn't like it when Israel was spying on us. Why should we -- others not be outraged when we are spying on them?

STEPHENS: Well, look, you know, if they feel that their vital secrets have been compromised on their part, maybe that is -- maybe that can be a source of outrage.

Pollard was a bit different because he was handing over --


GIGOT: -- secrets.

STEPHENS: -- U.S. secrets that, once compromised, required billions of dollars to be he placed. I think all the Europeans agree that no vital secrets on their part have been compromised. It's a kind of question in the abstract as to whether this should happen.

HENNINGER: There is an aspect of all of this, Paul, that I don't think we can duck, and that's the fact that if you add in the controversy over the NEA surveillance, we need this kind of intelligence operation going on. But people are becoming very anxious, I think, about the idea that the state has all of this enormous informational power that they could use against people, so there could be some political pushback. And I think we are going to have to be careful that it doesn't damage some of the really useful things we do in these areas.




GIGOT: All right.

We have to take one more break. When we come back, "Hits and Misses" of the week.


GIGOT: Time now for "Hits and Misses" of the week -- Joe?

RAGO: Paul, a word on behalf of the bravery of the 19 young men who died fighting a wildfire in central Arizona. The author, Norman McLean (ph), spent the last years of his life studying a similar tragedy, the Man Gulch Fire of 1949 in Montana. And he said the only way to express gratitude for such sacrifices was to find new things to love, especially compassion as a form of love.

GIGOT: Thanks, Joe.


STEPHENS: So Egypt is on the verge of civil war. Syria is in civil war. Iran is close to building a bomb. What's our Secretary of State John Kerry doing? He's rolling the boulder up the hill of Israeli-Palestinian peace. 13 hours of talks with Israeli Prime Minister Benjamin Netanyahu. It is amazing the man has the stamina or the bladder to survive a visit from John Kerry. Maybe next time John Kerry can work on solving Armenian peace or maybe the crisis in East Timor.

GIGOT: Mark him down as a skeptic.


GIGOT: James?

FREEMAN: I have a big miss for Danny Werfel, the new head of the IRS. Just a few weeks on the job, and already he's proven he is no reformer. He's basically been saying that well-meaning bureaucrats were poorly managed and that's how we got targeting of conservative in the Tea Party. Outrageous.

GIGOT: So I gather you think that this is not going anywhere, John Kerry's peace plan, Bret?

STEPHENS: Yeah. I don't think that's going to go anywhere. But it would be nice to see a secretary of state devote himself to issues that are actually -- matter.

GIGOT: Like Syria.

And remember, if you have your own "Hit or Miss," please send it to us at Be sure to follow us on Twitter at JERonFNC.

That's it for this week's show. Thanks to my panel and especially to all of you for watching. I'm Paul Gigot. Hope to see you right here next week.

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