This is a partial transcript of "Special Report With Brit Hume" from Jan. 13, 2006, that has been edited for clarity.

(BEGIN VIDEO CLIP)

ANGELA MERKEL, GERMAN CHANCELLOR (through translator): It does have an impact if — as large number of nations in this world as possible make it abundantly clear we are not accepting a stance that says, in effect, the right of existence of Israel questioned. You are trying to lie to us. You are trying to cheat. This is something that we don’t accept.

(END VIDEO CLIP)

JIM ANGLE, CO-HOST: That’s Angela Merkel, the new chancellor of Germany. The U.S. and its European allies have at long last reached exactly the same point on Iran, or more or less the same point anyway, on what they think about it, that it that it has lied and that more forceful action must be taken to keep it from developing nuclear weapons.

Here to talk about the growing crisis is Dr. Kenneth Pollack of the Brookings Institution, where he is research director at the center for Middle East Policy. He also served on President Clinton’s National Security Council, and is a former CIA military analyst on Iran and Iraq. Ken, go good to see you again.

KEN POLLACK, BROOKINGS INSTITUTION: Thank you, Jim. Good to be here.

ANGLE: This was the first time Americans have gotten a chance to see Angela Merkel, she looks like she is a pretty tough character, at least on this issue of Iran.

POLLACK: Absolutely. When it comes to Iran and a whole variety of other foreign policy issues, Merkel is much closer to the U.S. position than her predecessor Gerhard Schroeder was. And what we have seen increasingly over the years is that the Germans, along with the French and the British have become extremely concerned. They are convinced that this is an Iranian nuclear weapons program, not an energy program and that it has to be stopped.

ANGLE: On Merkel, this one little thing on her, she came from the former East Germany, Communist East Germany, is it that experience you think, the experience with dictatorial regimes that do lie and cheat, as she said about Iran today, which is pretty remarkable, is it that experience that informs her judgment on this, you think?

POLLACK: All I can say, Jim, is I was in Germany right before the election. And I was able to speak to a number of different German politicians, German civil servants, and that seemed to be their feeling was that if you had lived under a dictatorial regime, you didn’t have much sympathy for other dictatorial regimes.

ANGLE: Now, let’s get to the issue of Iran here, the U.S. and Europeans now have finally sort of come together on this. What is the next step?

POLLACK: Well, the key issue really is whether the Europeans are actually now willing to put their money where their mouth is. As I said, they seem to have gotten religion, they seem to have figured out that Iran really is trying to develop nuclear weapons and that is has to be stopped. But what we have seen from the Europeans from the past 10 or 20 years is that even when they perceive a real threat, they don’t always believe in dealing with it the way that we would.

And this is going to be critical, because the Iranians are betting on exactly that. That the Europeans will huff and they will puff, but they’re not going to be willing to actually do anything meaningful like joining the United States in really harmful sanctions against them. That’s what the Iranians are betting on right now.

And right now, it is up to the Europeans to demonstrate to the Iranians that this is not the Europe of the 1990’s, this is not your father’s Europe, that this is a brand new Europe that really is willing to use its economic muscle.

ANGLE: Now, there are some interesting developments on the diplomatic front, one of the — well, there are a couple of holdouts, but one of the holdouts had always been Russia, which had a lot of fairly lucrative commercial dealings with Iran. They now seem to be on board with tightening the noose.

POLLACK: Right. Well, first, the Russians have always said that Iran should not be allowed to possess nuclear weapons, nuclear weapons capability or enrichments. Beyond that, though, there have been two things going on.

First, the Iranians did something truly stupid in only the way Iranians came forward, which is the Russians came forward with a compromise deal a couple of months ago which frankly most experts looked at and said boy that would be a great deal for the Iranians. And rather than the Iranians say that looks pretty interesting, let’s talk about it, they stiffed the Russians. And it was a terrible insult to Vladamir Putin. It was a real slap in the face. That really ticked off the Russians.

The second thing is that the U.S. and the Europeans have basically been going to the Russians and saying we are really serious about this and we mean it when we talk about sanctions. And what the Russians have apparently been saying is, if you are serious, OK, we can talk. We have got some interests here. And we’re willing to talk about how you can compensate us for those interests.

But that has always been the issue. The Russians didn’t think the Europeans were serious either.

ANGLE: So now the Russians are more or less on board. The one holdout, at least on the Security Council is China, which has been making noises that this might not be a good idea. What are they saying? And why?

POLLACK: Well, the Chinese have always taken a position that they oppose pretty much all sanctions across the board, mostly because China doesn’t like to see an activist U.N., because they’re afraid that some day they might be on the receiving end of those kind of sanctions. And of course, remember back to the Korean War, they were on the bad end of a U.N. resolution at that point in time.

It’s important to understand, though, that China’s position is not unequivocal. And I think people make this mistake. Yes, China’s relationship with Iran is an important one and it is growing over time, it is not the most important thing in the world to China. There are much more important things out there for China.

And typically, the way that you handle diplomacy in the U.N. is if you have a problem actor like China on Iran, like Russia and France were on Iraq, you try to isolate them.

That I think is exactly what the U.S. and Europe are doing. I think and there is a very good likelihood we could do it. The U.S., Europe working together, we can bring in a whole bunch of third world nonaligned movement countries, if we can bring in the Russians as well, that leaves the Chinese isolated. Chances are in that circumstance, they will not veto.

ANGLE: They don’t like to be odd man out?

POLLACK: Exactly. No one likes to be.

ANGLE: Now, what can be done? What kind of sanctions might be imposed that would actually change the mind of the Iranians who seem pretty defiant at this point? We’ve got about a minute left.

POLLACK: Sure. There are two sets of possible sanctions out there. One is the symbolic kind of sanction, like travel ban, preventing Iranian leaders from traveling abroad. It’s purely symbolic, because most of the Iranian leaders don’t travel. It would be designed to simply send a signal to the Iranians that something worse is going to come.

The thing that’s worse, the second set, has to be about investment in Iran. No one is going to touch Iranian trade because all of their trade is about oil, and nobody wants the jacked up the price of oil. Iran is desperate for foreign investment. They have got to have European, Japanese and hopefully American capital, sanctions could shut them down. That would cripple the Iranian economy.

ANGLE: They have a young, somewhat western-oriented population that would like to see better economy and more jobs?

POLLACK: Exactly.

ANGLE: Great. Ken, very good to have you. Thanks for helping us work through this. We appreciate.

POLLACK: Thank you, Jim. Always good to be here.

Watch "Special Report With Brit Hume" weeknights at 6 p.m. EST.

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