U.S. digs in as Europe queries Wolfowitz's command

By Lesley Wroughton

WASHINGTON (Reuters) - The United States continued to insist on Tuesday that Paul Wolfowitz's ability to lead the World Bank was effective and undamaged, while his European critics said the bank's credibility was at risk as long as he was still at the helm.

The outcome of the transatlantic battle over Wolfowitz's leadership, which has now raged for weeks over a pay and promotion deal for his companion, remained unclear, with the Bush administration maintaining he could function effectively.

"We believe that the World Bank can continue to be an effective development institution with Paul Wolfowitz as president," White House spokesman Tony Fratto said.

Questions over the leadership of the former U.S deputy defense secretary grew more heated after leaked findings of a bank panel said he broke rules when he personally directed a promotion for his companion, World Bank Middle East expert Shaha Riza, in 2005.

Meanwhile, Wolfowitz's lawyer complained it was "terribly unfair" his client was given only a few days to respond to panel's draft findings.

In a statement the lawyer, Bob Bennett, said that under bank rules a staff member under investigation would be given five days to respond to allegations.

Bennett also said that leaks of the panel's findings were harmful to Wolfowitz and the World Bank.

"The appearance that people are prejudging the outcome of the process weakens bank governance and disrespects both the board and the process," Bennett said in a statement.

The seven-member panel refrained from making any recommendations on how Wolfowitz should be penalized for violating bank rules until his response.

There are no rules to determine the dismissal of a World Bank chief because it has never happened before in the bank's nearly 63-year history.

Meanwhile, behind the scenes tensions simmered between the United States, which put Wolfowitz in the job, and some European shareholders, who grudgingly confirmed him for the job in March 2005 despite misgivings over his role as an architect of the Iraq war.

'SERIOUS DOUBTS'

Since the bank's inception after World War Two, the United States has always nominated the president without objection, while the head of its sister institution, the International Monetary Fund, has always been a European.

Wolfowitz has blamed the controversy on a smear campaign, mainly by critics among the bank staff and member countries of his ties to the Bush administration and the Iraq war.

European board sources told Reuters on Tuesday that Wolfowitz was unlikely to quit even though the panel's findings further damaged his credibility.