Wolfowitz Affair: Europeans Offer Bush Compromise

European governments are offering the White House a compromise over the Wolfowitz affair. After a meeting in Brussels, European finance ministers have decided not to challenge the prerogative of the President of the United States to nominate the head of the World Bank if the Bush administration puts an end to the stand-off and pushes Paul Wolfowitz, his former Deputy Secretary of Defense, to resign as president of the organization.

Since the foundation of the World Bank, the President of the United States has been given the prerogative to choose and nominate the head of the organization – the US holds around 16.4% of total votes, and major decisions require an 85% super-majority. Instead, European governments have the prerogative to elect the top executive of another Washington-based Bretton Woods institution, the International Monetary Fund.

Wolfowitz’s nomination in 2005 brought praise and criticism from leaders worldwide, including strong reactions from economists. “The World Bank will once again become a hate figure,” Joseph Stiglitz, Nobel Prize laureate and former chief economist for the World Bank said in March 2005. “This could bring street protests and violence across the developing world.”

“Up to now the appointment procedure seems to have worked,” Wouter Jacob Bos, Finance Minister of the Netherlands told reporters in Brussels. “We have a problem with the president, not the procedure. We need a president with a good reputation and good integrity. I have serious doubts.”

Slightly more conscious Javier Solana, foreign policy chief of the European Union. “Maybe it is the moment to think,” he said referring to a possible review process of how the top jobs at the World Bank and International Monetary Fund are awarded.

Last week, EU Parlamentarians voiced their discomfort over Wolfowitz leadership and asked EU leaders to press the White House over the subject at a EU-US summit in Washington. The EU Parliament voted 333-251 with 31 abstentions to include a paragraph in a resolution on transatlantic relations calling on Germany, as holder of the EU presidency for the first half of 2007, and the United States to ask Wolfowitz to stand down. They should “signal to the president of the World Bank, that his withdrawal from the post would be a welcome step towards preventing the bank’s anti-corruption policy from being undermined,” the paragraph said.

At the moment, Wolfowitz seems to have the support of only the United States, Canada and Japan, but the Bush administration solely has publicly supported him: “We believe that the World Bank will continue to be an effective development institution with Paul Wolfowitz as president,” Tony Fratto, deputy White House Press Secretary, said earlier today. Bush, however, seems willing not to get personally involved in the debate over the bank’s presidency: “This is a World Bank matter,” White House spokesman Tony Snow told reporters.

Wolfowitz, who was found guilty of a conflict of interest in arranging for a pay raise and promotion for his girlfriend in 2005, has until May 9 to respond to the findings of the special committee established by the bank’s Board of Directors.

The conclusions of the committee, not made public, have stepped up pressure on Wolfowitz from governments and bank staff, despite his statements last week suggest he’s not willing to resign in the event committee finds him guilty. Calls for resignation are increasing by the minute and have forced one of his top aide, Kevin Kellems, to quit the World Bank.

Staff complaints are now targeting a second aide, Robin Cleveland, who followed Wolfowitz after his appointment to the top post at the World Bank., still in place. Both Cleveland, still in place, and Kellems have been the focus of critics over their high salaries — more than $250,000 a year.

According to observers, the Wolfowitz affair is undermining the work of the bank in the least developed countries. “With all these problems, the World Bank’s agenda has clearly been made more difficult,” said a senior European development official, asking not to be identified because of the issue’s delicate nature. “We are seeing countries becoming more hesitant. They are saying that they have a lot more options available for their money.”

“The work of the bank goes on,” Wolfowitz replied to reporters earlier last week. “There are millions of poor people who depend on us, and we will continue that work. It’s a matter of keeping promises made.”

Last week, Wolfowitz issued a broad-based rebuttal that blamed unclear bank rules for creating questions about his handling of hefty pay raises for his girlfriend. “Rather than attempt to adjudicate between our conflicting interpretations of the events that occurred here, the board should recognize that this situation is the product of ambiguous bank rules and unclear governance mechanisms,” Wolfowitz wrote Thursday to the special panel’s chief, Herman Wijffels.

“While I am prepared to acknowledge that we all acted in good faith at the time and there was perhaps some confusion and miscommunication among us, it is grossly unfair and wrong to suggest that I intended to mislead anyone, and I urge the committee to reject the allegation that I lack credibility,” he wrote.

World Bank officials are working behind the scenes to reach some sort of settlement with Wolfowitz and facilitate his departure before the board of directors is forced to oust him. And although Wolfowitz’ future is far from certain, observers are already engaged in planning for the post-Wolfowitz era: two recurring names are Robert Zoellick, a former US Deputy Secretary of State, and Stanley Fischer, the governor of the Bank of Israel, who has dual American-Israeli citizenship.

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