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France, one of Europe’s largest economies, reported disappointing employment figures this week, calling into question the sustainability of the recovery in one of Europe’s few stable markets. The French job market sharply worsened, as the unemployment rate spiked to 9.9% (9.6% without French overseas dependencies included), the worst level since 1999. In order to rectify the situation, the government has announced several plans in order to spur industrial growth, specifically in green technology and manufacturing industries, in order to keep jobs in the country. France has now lost more than 500,000 manufacturing jobs over the past decade.

Despite the ongoing job drain, the French economy has weathered the recent downturn better than many of its neighbors. Since Sarkozy took office, French unemployment has risen 22 percent above its May 2007 level, while joblessness across the 16-country euro zone rose 34 percent in the same period and the United States’ rose 119 percent, said finance minister Christine Lagarde.

Nevertheless, the increase in unemployment is not good news for Sarkozy and his fellow conservatives ahead of regional elections in France. Rival parties are likely to use this data as proof that current polices are not effective on the issue of unemployment and that reforms, such as those proposed a decade ago that would limit the amount of hours people could work to 35 per week, might see renewed support. While these policies would probably help to decrease the unemployment rate, they would also probably increase the perception that France has one of the most static job markets in the developed world, which would discourage further foreign investment.

Although many funds have material allocations to French equities, the iShares MSCI France Index Fund (EWQ) focuses exclusively on French companies. EWQ tracks the MSCI France Index, a benchmark consisting of companies that trade on French exchanges or do a majority of their business in the country. Like most of developed Europe, French equities markets have suffered in 2010; EWQ has posted a loss of about 6% since the beginning of the year. This news, which only had a modest negative effect on EWQ, only adds to the issues that the economies of Europe are facing as the drama in Greece continues to play out and fiscal deficits reach record levels.

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EWQ

Disclosure: No positions at time of writing.

Source: France ETF in Focus After Disappointing Unemployment Numbers