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"Sanctions are necessary and soon. I can't see there is really a constructive will on the Iranian side for substantial talks," Westerwelle said on the sidelines of a meeting of EU foreign ministers in Cyprus.
"If they will not come back to the table, then probably the next round is necessary. This is not something for next year, we are talking about next weeks," he said.
He called the outcome of this year's three rounds of negotiations between world powers and Iran "disappointing".
French Foreign Minister Laurent Fabius said diplomacy was at a standstill. "We will discuss in the next days the details of strengthening sanctions," he told reporters.
Fabius suggested new measures could target the finance, trade and oil sectors, but gave no other details.
Westerwelle and British Foreign Secretary William Hague, who also said new sanctions were necessary, both stopped short of listing possible targets.
EU foreign ministers were meeting in Cyprus to discuss informally issues such as the bloc's response to the Iranian atomic program and the crisis in Syria. But they were not scheduled to take any decisions.
The European Union implemented its latest round of sanctions on Iran in July, banning oil imports from the Islamic Republic. The United States is applying increasing diplomatic pressure around the world to isolate the Iranian economy.
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