France's Wake Up Call

| About: iShares MSCI (EWQ)

Like the United States in 2011, France (NYSEARCA:EWQ) lost its Triple-A credit rating in January 2012. On Friday, November 8th, Standard & Poor's downgraded France's rating another notch to AA from AA+.

This is the third agency downgrade for Paris since François Hollande took office as president in May of last year. But while the United States seems on the path to recovery from the 'great recession', in France, no high impact measures have been implemented, nor announced, to improve the county's economic state, and the pressure is building up.

Overall, S&P's message is that it does not believe France to be on the right course to overcome the ongoing economic slowdown. The agency is not alone in its thinking: the French press openly criticized the government in the wake of the downgrade, and Mr. Hollande is widely unpopular. His approval rating is 26%, the lowest ever recorded for a French president. The go-slow, high-tax policy has reached its limits as recent tax increase proposals have met with protests.

Even if France is not 'the sick man of Europe' (Greece or Spain would more likely be), the downgrade adds to the pessimistic national mood of a country that has undergone recession twice over the past four years, and which currently struggles with an 11% unemployment rate.

France is in dire need of reforms. Businesses are perceived as lacking in competitiveness, and export markets are lost out to neighboring Germany. Labor laws need upgrades in order to lower the unemployment rate and incentivize businesses to hire. And the moribund economy prevents the reduction of the budget deficit to 3% of GDP, as mandated by the European Union.

François Hollande seems to have tried all but what is really needed: boldness. Worrisome is his immediate reaction to the S&P downgrade, to which he replied that he was determined to continue current economic policies.

While a credit rating downgrade might hurt national pride more than the economy, France does not have the luxury of waiting. It will only exacerbate issues, and social unrest is rising, most recently in the rural area of Brittany. Tax increases and austerity have proven limited in results. Given the urgency, U.S.-style crisis-era measures would be welcome, such as a stimulus package. And more than just that, several successful American economic policies could be implemented for France's respected economy to get back on its feet. For Mr. Hollande, who, like Barack Obama, campaigned on change, the time has come for swift ones.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.