From Volume 5, Issue Number 26 of EIR Online, Published June 27, 2006

Western European News Digest

Privatized Thames Water No Match for Drought

A run-down, privatized water system in Great Britain is no longer able to deal with the current drought, which has had drastic effects on water availability in the London area and parts of southern England. According to Sueddeutsche Zeitung June 13, Thames Water, the main private water supplier, has officially applied for a "water ban" on use of water for gardens and car washing. Also, firms which use water in great amounts are facing cuts in their water usage, in some cases even threatening a halt to production.

At present there are unusually high temperatures, with ground water, which is the most important water reservoir in southern England, at alarmingly low levels. However, clearly the present water shortages are the result of lack of investment, dating back to the years of Prime Minister Margaret Thatcher's water privatization in 1989. Very little has been invested in the pipeline system, in reservoirs, or water recycling, leading to leakages as high as 30%. Some of the pipes are from the Victorian age. Since (government-regulated) prices could not be increased to the high rates of the early period of privatization, the "incentive" to invest in repair, construction, and expansion of the system, has even become lower, in favor of profits.

RWE, which with the French firm Vivendi (which also runs the Berlin water system), took over Thames Water, the largest British water supply firm, in 2000. Now, RWE plans to sell off Thames next year, along with American Water, a leading U.S. water supplier (which it had bought in 2003). Goldman Sachs is organizing the sale. In announcing the sales, Harry Roels, chairman of RWE AG in November 2005, stressed that the shareholder dividend could be increased by 20%, while also reducing the overall indebtedness of RWE.

The next phase, as everywhere with the financial locusts, is the direct involvement of financial speculators, which have nothing to do any more with the subject of investment as such. Equity firms such as Terra Firm, the Australian Macquarie Bank, and the Spanish construction giant FCC, have expressed interest in taking over Thames Water.

Scion of Former Italian Royalty Arrested for Corruption

The head of the former Italian royal family was arrested June 16, and now sits in jail. Victor Emmanuel of Savoy, son of the last King of Italy, Umberto II, is accused of racketeering on three accounts: corruption, gambling, and promotion of prostitution. The investigation also involves the spokesman for former Foreign Minister Gianfranco Fini, Salvatore Sottile, who is now under house arrest.

Victor Emmanuel returned to Italy in 2003, after the constitutional provision which forced all male descendants of the House of Savoy into exile, was lifted. His son Emanuele Filiberto, an investment banker, is a subject of the investigation as well. Emanuele Filiberto had founded a political movement and was planning a career in politics. Before founding his own party, he had elected to Parliament a few of his men in a splinter party called Democrazia Cristiana per le Autonomie.

Some observers have drawn a connection between the spectacular arrest of the head of House of Savoy and the vote on the constitutional referendum to take place on Sunday, June 25, in which the integrity of the republican constitution is at stake. However, the investigation of Victor Emanuel had started two years ago.

The Savoy family amply deserves this public humiliation. They bear historical responsibility for promoting Mussolini's Fascism and leading Italy in World War II. After they were exiled, they continued to conspire against the Italian Republic. Only shortly before his comeback, for purely opportunistic reasons, did Victor Emmanuel, who runs a sideline as an international weapons dealer, officially recognize the Republic. Not accidentally, the Italian head of the famous "Murder, Inc.," Permindex, was Carlo d'Amelio, the lawyer for the House of Savoy.

Italian Arrest Also Makes News in Bulgaria

The arrest of Prince Victor Emmanuel IV, the son of the last king of Italy, is also a big story in Bulgaria. His cousin, King Simeon II, the last king of Bulgaria (he is a Saxe Coburg like the Savoy heir's mother), is the former Prime Minister of Bulgaria, and is currently running in the elections. In Bulgaria, Victor Emmanuel is being accused of financing Simeon's campaign.

In addition, Simeon also has an interesting connection to the international banking house of Lazard. Simeon's Deputy Prime Minister and Economics Minister was one Nikolay Vasilev, who arrived in Bulgaria in 2000, straight from Lazard in London. As Economics Minister, Vasilev oversaw all the privatizations.

Simeon also has an advisor, Mario Al-Jebouri, who is another former Lazard London man. Prior to entering Bulgarian politics, Simeon was based in Madrid and was a director of the French defense contractor Thomson CSF, which is now part of Thales where Bruno Roger, the head of Lazard Paris, is a director.

Environmental Minister Attacks Lyon-Turin Rail Tunnel Plan

Meeting with EU Commissioner Loyola De Palacio on June 21, Italian Prime Minister Romano Prodi promised that the Lyon-Turin high-speed railway (TAV) project, which includes a major new tunnel underneath Mont Blanc, will not be cancelled, despite claims to that effect by Environment Minister Alfonso Pecoraro Scanio. The EU has already allocated money for that project, and Palacio wanted to have a clarification on the issue.

Meanwhile, in Rome, Scanio gave several interviews in which he said that the tunnel will be cancelled, and that the new line will be downsized. Infrastructure Minister Antonio Di Pietro announced that a new conference will take place, involving all local municipalities involved, which had been bypassed by the previous government, in order to reach a consensus on the TAV project.

VW Management Follows GM Economic Model

A metal workers union source told EIR June 19 that the entire debate on alleged "extra" costs of car production in Wolfsburg and at other Volkswagen sites is fake, and is fueled by those who claim that cuts in spending and financial services are the real source of profit.

The financial services division of Volkswagen has been the most profitable in the recent period, indeed, among all VW divisions, but the money there has not been made from the sale of cars, but rather, from speculation. There are some in management who would rather concentrate on these financial deals, than on producing cars, but that is not that easy to achieve—at least not in Germany, at this point.

Meanwhile, news wires continue reporting that the VW management wants to eliminate 30,000 (almost one-third of the total VW workforce in Germany), instead of 20,000, which was mentioned the previous week.

Lazard Intensifies Raids into German Capital Goods Sector

Lazard Germany has begun a new "consulting" drive into the capital goods sector, carried out by Eric Fellhauer, who joined chairman Join Kornblum, after leaving the Carlyle Group Germany, where Fellhauer worked as a specialist for such operations. Fellhauer was crucial in some spectacular deals of the recent years: Tchibo's sale of its Reemtsma branch; the purchase of Buderus by Bosch; the acquisition of ATECS by Siemens; the mergers of Krupp and Thyssen (where Kornblum is on the board now), and of Daimler and Chrysler.

The transfer of Fellhauer, who worked for Merrill Lynch before joining Carlyle, is typical for the osmosis among top personnel of the leading firms of the "investment" branch: Lazard has recruited many former Carlyle and Merril Lynch officials, and vice versa. Carlyle Germany, for its part, has focussed on the supply sector of the German automotive industry, holding shares in some of the leading specialists there: Fennel Technologies; Heinze Technik; DGTH; Honsel International Technologies; Edscha AG; Beru Group.

Lazard Reorients European Industry Toward Entertainment

In 1999, the management of Preussag AG, one of Germany's leading steel and ship/port equipment producers, decided to walk out of production and turn into an entertainment/tourism group. The model for that may have been the case of France's leading water producer Vivendi, which from the mid-1990s was turned into a world media group by its new CEO Jean-Marie Messier, a former Lazard banker.

The first round of Preussag sales occurred in 1997, involving shares at Salzgitter Steel. The second round in 1999 involved the sale of shares at the HDW shipyard and the Noell Cranes firm—the latter two going to Babcock-Borsig. In an asset swap, Preussag also took over 33% of Babcock. Funded by the bankers at West LB, Preussag then acquired the British tourism firm, Thomson Travel Group, turning into the world's biggest firm in that branch, and adopted the new corporate name TUI.

The third round of exit from production began in November 2001, when Preussag AG sold 8.5% of its remaining shares in HDW, the most important German shipyard, to the French Credit Agricole Lazard Financial Products Bank, and Lazard consecutively also helped in the sale of other Preussag shares, for example a substantial package of HDW shares to Deutsche Bank. Most of these shares, however, mysteriously ended up in the hands of the US-based One Equity Partners fund, by no later than March 2002.

During the same period, Babcock-Borsig, the other major HDW shareholder, sold 30% of its shares to One Equity, so that by March 2002, the fund controlled a 75% majority of HDW. That posed the threat of HDW, producer of the conventional submarine class 212 of the German Navy, the most modern worldwide in this class, getting under the control of non-German interests, including JP Morgan Chase, which handled about 3 billion euros through One Equity in this take-over operation. JP Morgan Chase also collaborates with Lazard, in many fields.

Public outcry and resistance in Germany forced the German government to intervene, seeking a "Franco-German solution" first, finally merging HDW with Thyssen Krupp Marine Systems in 2004, into a "German" solution. Here, too, Lazard is present: John Kornblum, CEO of Lazard's Germany operation since January 2001, sits on the board of Thyssen-Krupp, the mother firm of the Marine Systems branch.

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