An angry and bitter Paul Wolfowitz

poured abuse and threatened retaliations

on senior World Bank staff if his orders

for pay rises and promotions

for his partner were revealed:

"If they fuck me or Shaha,

I have enough on them to fuck them too"

With Wolfowitz so far refusing to step down,

the board may need to take

radical action to break the stalemate

Members have discussed a range of options,

including sacking Wolfowitz,

issuing a vote of no confidence or reprimanding him

Some board members argue that

a vote of no confidence would make it

impossible for him to stay in the job.

The Wolfowitz saga at the World Bank is a sordid, sorry affair, but it illustrates the need for reform in the way the organisation is run.

Paul Wolfowitz, neo-con and architect of the Iraq War, has been rapped by a panel for his role in awarding a pay and promotion package to his girlfriend, Shaha Riza.

Now he is under pressure from European shareholders in the bank to resign: they are horrified that he is hanging on to power while the institution continues to lecture developing countries about the need for good corporate governance.

Wolfowitz might have quit by now, but the US administration is trying to persuade him to stay to avoid losing face. He is, after all, an American appointment. But therein lies the problem.

The bank's credibility would be better served if its president were selected by an independent body with power to hire and fire. If that were the case, he would have been shown the door weeks ago.

An angry and bitter Paul Wolfowitz poured abuse and threatened retaliations on senior World Bank staff if his orders for pay rises and promotions for his partner were revealed, according to new details published last night.

Under fire for the lavish package given to Shaha Riza, a World Bank employee and Mr Wolfowitz's girlfriend when he became president, an official investigation into the controversy has found that Mr Wolfowitz broke bank rules and violated his own contract – setting off a struggle between US and European governments over Mr Wolfowitz's future.

Sounding more like a cast member of the Sopranos than an international leader, in testimony by one key witness Mr Wolfowitz declares: "If they fuck with me or Shaha, I have enough on them to fuck them too."

The remarks were published in a report detailing the controversy that erupted last month after the size of Ms Riza's pay rises was revealed.

The report slates Mr Wolfowitz for his "questionable judgment and a preoccupation with self-interest", saying: "Mr Wolfowitz saw himself as the outsider to whom the established rules and standards did not apply."

The report brushed off Mr Wolfowitz's defence that he thought he had been asked to arrange Ms Riza's pay package, observing that "the interpretation given by Mr Wolfowitz ... simply turns logic on its head".

The investigators have sent their completed report to the bank's governing board, containing a string of withering criticisms of Mr Wolfowitz's behaviour and casting doubt on his ability to continue running the bank, a multibillion-pound international agency with 12,000 staff based in Washington.

According to the report, Mr Wolfowitz's actions "had a dramatic negative effect on the reputation and credibility" of the bank.

It concluded that "the damage done to the reputation of the World Bank group" should lead the bank's board to "consider whether Mr Wolfowitz will be able to provide the leadership needed to ensure that the bank continues to operate to the fullest extent possible".

It also said: "Mr Wolfowitz's contract requiring that he adhere to the code of conduct for board officials and that he avoid any conflict of interest, real or apparent, [was] violated."

Despite the weeks of turmoil within the bank, Mr Wolfowitz may still keep his job if the US government is prepared to stick by him.

Mr Wolfowitz still enjoys support from the Bush administration, where he served as deputy defence secretary at the Pentagon during the invasion of Iraq.

Yesterday vice president Dick Cheney defended Mr Wolfowitz, saying: "Paul is one of the most able public servants I've ever known .... I think he's a very good president of the World Bank, and I hope he will be able to continue."

The US treasury secretary, Hank Paulson, was yesterday said to also be drumming up support for Mr Wolfowitz, while European governments increasingly despair of US intransigence in allowing Mr Wolfowitz to hang on.

The angry comments attributed to Mr Wolfowitz came from damning testimony by Xavier Coll, head of human resources at the bank, who provided investigators with his notes of a meeting with Mr Wolfowitz last year.

The notes directly contradict Mr Wolfowitz's assertions that the details of Ms Riza's treatment were properly shared with senior bank officials.

In March last year, when a mention of Ms Riza's secondment outside the bank to avoid rules about partners was first published in the magazine US News & World Report, an angry Mr Wolfowitz accused Mr Coll of leaking the information.

According to Mr Coll's notes: "At the end of the conversation Mr Wolfowitz became increasingly agitated and said that he was 'tired of people ... attacking him' and 'you should get your friends to stop it'.

Mr Wolfowitz said, 'If they fuck me or Shaha, I have enough on them to fuck them too'," naming several senior bank staff he felt were vulnerable.

Mr Wolfowitz appears before the bank's executive board today to make a final defence of his actions, with the board meeting tomorrow to consider the report and make a statement later in the week.

With Mr Wolfowitz so far refusing to step down, the board may need to take radical action to break the stalemate.

Members have discussed a range of options, including sacking Mr Wolfowitz, issuing a vote of no confidence or reprimanding him. Some board members argue that a vote of no confidence would make it impossible for him to stay in the job. Richard Adams @ Guardian