by Natalie de Vallieres and Nasra Ismail, BBC News, for the BBC's Biodun Iginla 

ISTANBUL – The collapse of another attempt at international outreach to Iran on Saturday has left world powers with few options except to wait — and hope that the bite of sanctions will persuade Tehran to reconsider its refusal to stop activities that could be harnessed to make nuclear weapons.

But their patience could be tested. While the U.S. and others say that Iran already is suffering from the wide range of financial and trade sanctions, travel bans and other penalties imposed by the U.N., the U.S., the EU and others, the Islamic Republic shows no sign of bending.

Uranium enrichment lies at the heart of the dispute.

Low-enriched uranium — at around 3.5 percent — can be used to fuel a reactor to generate electricity, which Iran says is the intention of its program. But if uranium is further enriched to around 90 percent purity, it can be used to develop a nuclear warhead.

Iran came to the Istanbul talks with six world powers Friday declaring it would not even consider freezing uranium enrichment — and left the negotiations Saturday repeating the same mantra. Throughout two days of hectic meetings, it stubbornly pushed demands it must have known were unacceptable to the six — a lifting of sanctions and acceptance of its enrichment program before any further discussion of its nuclear activities.

"Both these preconditions are not the way to proceed," EU foreign policy chief Catherine Ashton declared — and added no new talks were planned.

Publicly, the U.S. and others nations concerned that Iran could turn its enrichment program toward making fissile warhead material say that troubles with enrichment have slowed that activity and left more time to persuade Iran to heed international concerns than thought just a year ago.

Israeli officials now talk of a three-year window — until 2014 — before Iran can make a bomb. That compares with projections of 2011 just three years ago.

U.S. Secretary of State Hillary Rodham Clinton told NBC's "Today" show earlier this week that the new Israeli estimates are "very significant." The delay, she said, "gives us more of a breathing space to try to work to prevent them from obtaining a nuclear weapon."

Two outside forces could account for any Iranian problems in enriching uranium — the increasing weight of U.N. and other sanctions meant to choke off raw materials needed to make and maintain the program, and the apparent havoc caused by the mysterious Stuxnet computer malware, which experts think was created by Israel or the U.S.

"Sanctions have had an impact. There are signs that Iran's nuclear program has slowed, so I think there is time and space for diplomacy," a senior U.S. administration official said after the Istanbul talks collapsed. He asked for anonymity in exchange for discussing the delicate issue.

While there is no talk for now of U.N Security Council new sanctions past a fourth set in June that target Iran's Revolutionary Guard, ballistic missiles and nuclear-related investments, there have been significant Western efforts to enforce present penalties.

Senior U.S. officials have been touring China, Japan, South Korea and the pro-western Arab nations to demand compliance with the U.N sanctions and the European Union, Canada, Australia and others have followed Washington's example in imposing their own restrictions on trade, financial transactions and other relations with Iran.

A diplomat from a delegations that met with Iran in Istanbul told the AP Saturday that EU outsiders Switzerland and Norway would formally adopt the EU sanctions next week. He asked for anonymity because he was not authorized to discuss the matter.

On the cyber front, Iran has acknowledged that Stuxnet hit "a limited number of centrifuges," saying its scientists discovered and neutralized the malware before it could cause any serious damage. The computer worm is assumed to have caused disruption of enrichment in November that temporarily crippled thousands of centrifuges at Natanz and experts say it could flare up again to do further damage.

Still there is no reason for complacency.

In a study shared this week with The Associated Press, the Federation of American Scientists notes impressive improvements in the performance of the Iranian machines that enrich uranium. The centrifuges are still underperforming but FAS says Iran last year appears to have increased their efficiency by 60 percent, giving it the technical capacity to produce enough material for a simple nuclear warhead in five months.

Few people think that Tehran is likely to provoke the world — and increase the likelihood of U.S. or Israeli attack — by kicking out International Atomic Energy Agency inspectors and re-calibrating its centrifuges to make such a device.

Manufacturing nuclear warhead material is only one step in making a weapon, and Olli Heinonen, who retired late last year as the IAEA deputy director general in charge of the agency's Iran file, calls the likelihood of such a "breakout scenario" a "suicidal mission" because of the likelihood of overwhelming international retribution.

Still, Iran seems determined to let nothing stop it from expanding enrichment, even starting a smaller program that is churning out material that can be turned into weapons-grade uranium much more quickly than its large stockpile of low-enriched uranium.

Neither "resolutions, sanctions, threats, computer virus nor even a military attack will stop uranium enrichment in Iran," Ali Asghar Soltanieh, Iran's envoy to the International Atomic Energy Agency, declared as the talks began.

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Economics focus

by Judith Stein and Biodun Iginla, BBC News and the Economist

The links between rising inequality, the Wall Street boom and the subprime fiasco

Jan 20th 2011 | From The Economist print edition

THERE was not a single year between 1952 and 1986 in which the richest 1% of American households earned more than a tenth of national income. Yet after rising steadily since the mid-1980s, reckon Thomas Piketty and Emmanuel Saez, two economists, in 2007 the income share of the richest percentile reached a staggering 18.3%. The last time America was such an unequal place was in 1929, when the equivalent figure was 18.4%. The similarities in the evolution of income inequality in the years leading up to the Depression and the global economic crisis make for one of the most striking parallels between the two episodes. Some talk of a repeat of the Roaring Twenties, when Jay Gatsby threw lavish parties at his Long Island mansion—although this time round, the dubious profits have been made from real-life finance, not fictitious bootlegging.

Economists have been thinking hard about the causes, extent and consequences of the recent rise in inequality. At the annual meeting of the American Economic Association (AEA) in Denver this month, there was a spirited debate about one of the most controversial hypotheses so far. That has been advanced by Raghuram Rajan, of the University of Chicago Booth School of Business, in a recent book, “Fault Lines”. He argues that increased inequality—more precisely, the political response to it—helped to cause the financial crisis.

Mr Rajan reckons that technological progress increased the relative demand for skilled workers. This led to a widening gap in wages between them and the rest of the workforce, because the supply of the skilled did not keep pace with demand. This reasoning is widely accepted. But Mr Rajan goes further than most when he argues that this growing gap lay behind the credit boom whose souring precipitated the financial crisis.

Governments, he argues, could not simply stand by as the poor and unskilled fell farther behind. Ideally, more should have been spent on education and training. But in the short run, credit was an easy way to prop up the living standards of those at the bottom of the economic pile. This was especially true in America, with its relatively puny welfare state.

Mr Rajan thinks, therefore, that it is no coincidence that America in the early 2000s saw a boom in lending to the poor, including those folks that banks used to sniff at. He points to the pressure the government put on the two state-backed housing giants, Fannie Mae and Freddie Mac, to lend more to poorer people. Affordable-housing targets, slacker underwriting guidelines and the creation of new “low down-payment” mortgages were all used as instruments of public policy.

The push for affordable credit worked. Subprime mortgages, whose share of all mortgages serviced rose from less than 4% at the turn of the century to a peak of around 15% before the crisis, were the most visible examples of this. They helped push American home-ownership rates to record highs. But the credit boom also inflated an enormous housing bubble, whose collapse precipitated a financial crisis brought on by defaults on those very subprime mortgages. According to Mr Rajan, therefore, well-intentioned political responses to the rise in inequality that many found disturbing ended up having devastating side effects.

This is a provocative idea. But do the facts support it? Two prominent economists—Daron Acemoglu of the Massachusetts Institute of Technology and Edward Glaeser of Harvard University—argued at the AEA meetings that Mr Rajan’s hypothesis, for all its plausibility, is flawed. Neither critic doubts that inequality rose and that poorer people gained access to more credit. But they disagree with Mr Rajan on the link between the two.

Mr Acemoglu argues that the expansion in credit came far too late for Mr Rajan’s hypothesis. The subprime boom began around 2000. Yet those at the bottom of the income distribution were getting hammered by technological change in the 1980s. Since then, the least-skilled workers in America have not become still worse-off, largely because they work in service industries which are hard to automate. Inequality has continued to rise because the rich have done even better; it is those in the middle who have fared relatively poorly. Why would the state try to help the poorest at a time when they were doing better than before?

Mr Glaeser has a different criticism. He thinks that the role of easy credit in the housing bubble was not as large as Mr Rajan believes. He refers to research by Atif Mian, of the University at California, Berkeley, and Amir Sufi, of the Booth School, which shows that increased mortgage availability pushed up American home prices by only around 4.3%. This was a small fraction of the rise in prices during the boom. Irrational exuberance and a willingness to bet on prices rising for ever were probably much bigger contributors to the bubble than credit expansion.

Let’s all agree to blame the speculators and lobbyists

Mr Acemoglu does believe that there is a link—albeit not a causal one—between increased inequality and the crisis. He thinks both were the consequence of politicians’ willingness to deregulate the financial sector, which partly reflected the industry’s lobbying prowess. A consequence, documented by two more economists, Ariell Reshef and Thomas Philippon, was that salaries in finance soared, causing a substantial part of the explosion in top incomes noted by Messrs Piketty and Saez. Runaway lending and lax standards, which fuelled the boom and contributed to the crisis, were others. So he thinks Mr Rajan is right to focus on politics but that they did not play out in quite the way he believes.

Ultimately it may be hard to prove a causal connection between inequality, subprime lending and the Wall Street boom. Even so, most economists at the AEA gathering agreed that the three forces combined in the American economy in an unsustainable and unhealthy way. To misquote “The Great Gatsby”, the rock of the world was founded securely on a fairy’s wing.

As protests persisted across Tunisia, its president for the past 23 years, Zine el-Abidine Ben Ali, fled to Saudi Arabia, leaving his prime minister to try to cobble together a unity government including several former members of the opposition. It was unclear whether this would help restore calm. Several nominees refused to join the new government unless Mr Ben Ali’s party was completely swept from power. Officials said 78 people had been killed in street violence in the past few weeks; the opposition said the true figure was several times higher. See article

A wave of self-immolations, to copy the action of a young man who sparked Tunisia’s upheaval in December, took place in some Arab countries, including Algeria and Egypt. See article

Ehud Barak, a former prime minister who is the defence minister inBinyamin Netanyahu’s ruling coalition in Israel, split from the Labour party, of which he had been the leader, to form a new party called Independence. He took four of Labour’s parliamentarians with him, while the other eight left the coalition in the hope of rejuvenating the peace camp opposed to the government. See article

In the most lethal attack against the authorities in Iraq since November, a suicide-bomber killed at least 60 people outside a police-recruitment centre in Tikrit, Saddam Hussein’s home town, north of Baghdad. The next day another suicide-bomber used an ambulance to kill at least ten people in Baquba, a city north-east of the capital.

As the polls closed in South Sudan’s referendum on whether to secede from the north, preliminary results suggested that the yes vote would exceed 90%.

Italian prosecutors said they were investigating charges thatSilvio Berlusconi, Italy’s prime minister, had paid for sex with an underage Moroccan-born dancer, among others, and had abused his office by securing her release from police custody. Extracts from the dancer’s wiretapped conversations were published in the press, including a comment from one woman that the prime minister had “even become ugly”. Mr Berlusconi denied the allegations. See article

Brian Cowen, Ireland’s beleaguered prime minister, survived a confidence vote in his leadership of Fianna Fail, the main governing party. He will now lead his party into a general election, probably in March, at which it is expected to take a pounding. See article

At a meeting of euro-zone ministers in Brussels, Germany’s finance minister, Wolfgang Schäuble, squashed hopes of an immediate relaxation in the rules governing the use of the €440 billion ($593 billion) rescue fund created last May. The European Commission had earlier called for an increase in its lending capacity.

It emerged that British and Russian police were investigating the activities of four Russian government officials assigned to theEuropean Bank for Reconstruction and Development. The bank said it had lifted immunity from prosecution for the four.

Doctors took congresswoman Gabrielle Giffords off the critical list, though she remains in a serious condition. After the Tucson shootings, and a well-received speech by Barack Obama calling for more civility in American politics, congressmen made an effort to tone down the rhetoric; some even urged their colleagues to abandon the usual party seating divisions at next week’s state-of-the-union address.

Republicans in the House voted to overturn last year’s health-care-reform act. The measure was largely symbolic and has no chance of advancing, but the party has vowed to introduce a steady drip of further bills to dismantle the reforms.

Reince Priebus won a ballot to become the chairman of theRepublican national party, ending the gaffe-laden tenure ofMichael Steele.

Some old hands in the Senate decided not to seek re-election in 2012: Joe Lieberman, who was Al Gore’s running mate in 2000 but has since occasionally antagonised Democrats, notably over his staunch support for the Iraq war; Kent Conrad, a Democrat fromNorth Dakota; and Kay Bailey Hutchison, a Republican from Texas.

Hu Jintao visited America. After a fractious few months that have brought differences to the fore over arms build-ups, currency policy and other issues, the Chinese president and his American counterpart were at pains to stress the benefits of the relationship between the two countries. China agreed to $45 billion in trade and investment contracts during the trip. Mr Hu said that China and America should “respect each other’s choice of development path”.

Hamid Karzai, Afghanistan’s president, agreed to a request by a special election court to delay the inauguration of a new parliament until February 22nd, to give it more time to investigate allegations of fraud at last year’s election.

The Communist Party in Vietnam wrapped up an important congress with an apology by the outgoing party chief for mishandling the economy. Yet the prime minister kept his job.

The Association of South-East Asian Nations called on Western countries to lift sanctions on Myanmar, now that Aung San Suu Kyi was free and a parliament about to convene.

Jean-Claude “Baby Doc” Duvalier, a former dictator, returned unexpectedly to Haiti, where he was questioned by prosecutors who charged him with embezzlement and corruption before releasing him. A judge will now consider whether there is enough evidence to warrant a trial. Mr Duvalier’s return coincides with a dispute over the result of a presidential election. Another exiled president, Jean-Bertrand Aristide, promptly said he too wants to return. See article

Barack Obama’s administration relaxed restrictions on travel toCuba by academic, religious and cultural groups and indicated that it would permit more charter flights to the island. Americans will now be allowed to send money to Cubans to support “private economic activity”. See article

The death toll from the recent flooding and mud landslides in towns located near the mountains behind Rio de Janeiro rose to at least 740. Another 21,500 people have been left homeless. See article