Wolfowitx lessons and perspective: World Bank., politics and morals.

LIKE SO much that has happened in the career of Paul Dundes Wolfowitz, it was not the leaving of his presidency of the World Bank that mattered, but the manner in which it happened. After weeks of briefing and counter-briefing over the rights and wrongs of the case - Wolfowitz stood accused of using his position to give financial rewards to his British-born girlfriend Shaha Riza - the former US deputy defence secretary, a neoconservative to his boots, finally bowed to the inevitable and sent in his papers.

Following a spate of frenzied soul-bearing, the 24-member board of the World Bank came up with a face-saving solution which allowed Wolfowitz to resign with effect from June 30 and to leave with his reputation relatively intact. In the statement announcing their decision, the board appeared to let Wolfowitz off the hook by accepting that he had "acted ethically and in good faith in what he believed were the best interests of the institution".

While this fell short of Wolfowitz's earlier demand that he should be exonerated completely - he claimed he had been given poor advice about Riza's $50,000-a-year, tax-free pay rise - it has still been a humiliating experience for a man who prided himself on being one of Washington's "untouchables".

As the dust began to settle yesterday, it was easier to see how the resignation had polarised thinking about the whole affair. Never before in its 63-year history had the board of the World Bank been forced into the position where it had to question the probity of its chief executive, and in diplomatic and financial circles the overwhelming feeling is one of relief that the crisis is over.

For those infuriated by Wolfowitz's original decision to press ahead with Riza's pay rise and his attempts to justify his behaviour, there is satisfaction that he has fallen on his sword - but this is balanced by anger that his resignation is a fairly modest outcome.

"I know that some of the Europeans would have liked to take it further and to rub his nose in what they clearly saw as his guilt," said a US diplomatic source. "In itself, the money was probably neither here nor there, but Wolfowitz had already made a scourge for himself by insisting from the outset that ethical business practices were going to be a priority. He belongs to a generation of Washington neocons who tend to believe that all organisations like the UN and the World Bank are mired in corruption."

By finding him an exit route, the bank's board has avoided the necessity of sacking Wolfowitz and asking its members to wield the axe. This would have put Britain, a key US ally, in a difficult position although, as the diplomatic source insisted, Wolfowitz's disgrace probably prompted an outbreak of schadenfreude among the Germans and French.

During the drawn-out deliberations over Wolfowitz's fate, there was a tendency for his supporters in Washington, most notably his fellow neocon ally Richard Perle, to dismiss the issue as a proxy battle between anti-American governments in Europe and the Bush administration in Washington. With Wolfowitz, one of the architects of US policy in Iraq, caught in the middle, Perle and others saw the scandal as payback time for the Europeans.

In fact, there might be some truth in that assertion. As deputy to defence secretary Donald Rumsfeld, himself no shrinking violet when it comes to waving the big stick, Wolfowitz was an enthusiastic advocate of attacking Iraq in the wake of the September 11 attacks. He was also a perfervid supporter of his boss's decision to oust Saddam Hussein quickly and cheaply by using "lite tactics" - that is to say deploying smaller and more lightly armed forces to carry out the assault and to control the subsequent occupation.

When senior officers protested that the plans were unworkable, they were simply over-ruled, even though - with the benefit of hindsight and the experience of past military operations - they were absolutely right.

The failure of the Iraq operation and its consequences for US policy weighed heavily on Wolfowitz. As much of the thinking had been evolved inside the Pentagon during his and Rumsfeld's watch, they were both heavily implicated in what had gone wrong. Instead of celebrating Saddam's downfall and the creation of an Arab democracy in alliance with the US, Bush's main defence planners were confronted by a shambles which saw Iraq descending into failed nation status and with little chance of finding redemption.

Wolfowitz would not have been human had he not wanted to find his own exit strategy. By the time of Bush's second term as president, he had seen the departure of colleagues such as George Tenet from the CIA and L Paul Bremer from his disastrous governorship of post-war Iraq, and he no longer wanted to be associated with a failed policy. The presidency of the World Bank gave him the opportunity to begin again, to remove himself from the shadow of disappointment and to try pastures new.

It helped that the post was in the gift of the White House - early in 2005 when it was up for grabs, he threw his hat in the ring and it was quickly accepted. A widely quoted "friend" confirmed that this was the chance Wolfowitz had been seeking. "It was not that he was looking for a redemption from Iraq per se," he was quoted as saying. "But he was always looking for something to do as a great man in foreign policy, which is how he has always seen himself."

Others were less generous, wondering if he would simply be a wolf in sheep's clothing, unable to accept the liberal, collegiate way in which the World Bank operates. To begin with it seemed that the fears were groundless.

Wolfowitz certainly has all the qualifications to succeed in his chosen field. He is intelligent, analytical and blessed with a razor-sharp mind. In the past he has worked in academia and has served as US ambassador in Indonesia, giving him a mix of intellectual and diplomatic skills. In the early days at the bank, those attributes stood him in good stead: he pushed through plans to cancel the debts of African countries and showed a steely determination to address corruption and inefficiency.

But the flipside is less appealing. In common with many high-flying intellectuals, he is intolerant of lesser beings and has a tendency to trust his own thinking at the expense of what others tell him. Soon he was complaining to friends that the World Bank was nothing more than a sleepy hollow peopled by liberal bureaucrats who ring-fenced their own empires and opposed attempts to introduce change.

Wolfowitz responded to what he believed was a deep-rooted problem in the same way that he had behaved at the Pentagon in the run-up to the war in Iraq: by refusing to listen to rational alternative arguments and by driving through his own agenda. As the situation was described by Manish Bapna, the executive director of one of the bank's watchdogs, Wolfowitz employed a management style which "was seen as an ad hoc, subjective approach to punishing enemies and rewarding friends".

Fatally for Wolfowitz's ambitions, one of the friends in receipt of his patronage was his girlfriend Shaha Riza. According to papers released by the World Bank in the early stages, Wolfowitz intended to do everything by the book but quickly lost patience and started following his instinct. Instead of distancing himself from Riza by ending the relationship or sending her back to the State Department without any financial reward (the reason for the hefty pay rise), he took the problem to the bank's ethics committee and then proceeded to fall out with the chairman Al Melkert over the correct procedures to adopt.

Wolfowitz then quarrelled with other key officials and the complexion of the issue changed. Instead of being about the propriety of awarding a sum of money to an employee with whom he was in a relationship, it descended into a quarrel about who was right and who was wrong. Wolfowitz complained he was given faulty or misleading advice, and that at least was conceded by the board, whose members admitted that Melkert's findings were "not a model of clarity". For their part, the officials have accused Wolfowitz of evasion and of attempting to keep the whole business secret from the ethics committee.

With the battlelines drawn, there was no way back. As Wolfowitz had no key allies in the upper echelons, he imported officials who had worked with him in the Pentagon, but their style was often at odds with the way the bank worked.

All too quickly the scandal over Riza became a battle to get Wolfowitz out of office. Those who never wanted him to be president of the World Bank finally got their way - but the story is far from over. Under current rules, his successor will be chosen by the US president and a number of candidates are being toted this weekend, including the extremely unlikely option of Tony Blair.

Sources within the White House say the president will move quickly to nominate a successor to allow "for an early transition that will have the World Bank refocused on its mission" but that might be wishful thinking.

Far from kicking the subject into touch, Wolfowitz's early departure has simply opened a wider debate about how the bank is run and whether or not the US should be the sole arbiter for the choice of its chief executive.