Ethically and politically Paul Wolfowitz has lost his battle to remain on as president of the World Bank. This is a major international defeat for the Bush administration. It follows this week's damning report from a panel of the bank's board into Mr Wolfowitz's role in the negotiation of a compensation package for his girlfriend, bank employee Shaha Reza.
At this writing it is not clear whether Mr Wolfowitz will resign or be sacked, as he seeks to save face with a compromise departing statement. Either way he deserves to go, since his action flies in the face of the anti-corruption agenda he has insisted on in dealing with the bank's 185 member states over the last two years.
His fate was all but sealed last month when the bank's development committee concluded it had to ensure that it "can effectively carry out its mandate and maintain its credibility and reputation as well as the motivation of its staff". By putting such an unqualified statement into the public domain the normally much more secretive bank executive clearly signalled its grave dissatisfaction under all three headings. The bank's mandate to lend money to the world's poorest countries faces competition from private sources of finance just when it is trying to raise $30 billion in contributions for that fund. Its credibility in that task is highly vulnerable to charges of hypocrisy, especially from governments accused or suspected of corruption. Staff motivation has taken a nosedive in the meantime, stoked by resentment over Mr Wolfowitz's arrogant and self-serving style of internal leadership.
This week's final report on his behaviour pulls no punches. It found he broke the bank's code of conduct, three staff rules and the specific terms of his contract. In parallel a furious lobbying battle has pitted the US against European governments determined to see Mr Wolfowitz go, as their allies and associates in other parts of the world shifted ground. The Bush administration wanted to hold the line for Mr Wolfowitz, because his role as a leading architect of the Iraq war when he was second-in-command at the Pentagon became a potent factor in the argument. He is particularly associated with the discredited hard right wing of the administration around vice-president Dick Cheney. US efforts to go over bureaucratic heads to foreign and prime ministers were rebuffed and they ended up isolated at international level.
This makes Mr Wolfowitz's departure a major political story. It signifies a shift of power, especially in transatlantic relations. The World Bank's soft power as a credible international lending agency should be enhanced; but much will depend on whether the US insists he be replaced by another US nominee, in keeping with the convention that this is balanced by a European managing director of its sister organisation, the International Monetary Fund. In fact it is high time this weighting of power laid down after the second World War be revised.