Europe could be on track to encounter a shock wave up to five times as turbulent as the start of the euro zone debt crisis if French presidential candidate Marine Le Pen was able to secure victory in May, according to a team of UBS analysts.
Strategists at the Swiss banking giant stressed the prominence of the anti-immigration and anti-European Union National Front leader meant France's fast approaching general election would be the most serious political risk event in the region this year.
Le Pen, who leads in the latest opinion polls, has vowed to renegotiate the terms of France's membership of the EU and ditch the single currency if elected as the country's new premier in just over two months' time.
"The systemic importance of France for the European project is such that the margin for damage limitation may well be a lot thinner than has been the case in Greece in the past or could be the case for Spain or Italy even," UBS analysts said in a note.
Instability from Europe's core 'harder to diffuse'
The bank predicted the shock of a Le Pen victory on sovereign spreads could be as dramatic as when Spain and Italy appeared to be on the brink of financial collapse in 2012.
UBS forecast a move of up to 500 basis points in sovereign spreads if Le Pen entered the Élysée Palace in early May. In comparison to a peripheral economy such as Greece, when Athens was on the brink of financial collapse in 2010, sovereign spreads widened by around 100 basis points.
"It is certainly arguable that risks to the euro zone's cohesion emanating from the core are by definition more severe and harder to diffuse than those emanating from the periphery," UBS analysts added.
40% chance of Le Pen victory
An Ipsos poll published on Sunday showed Le Pen and centrist candidate Emmanuel Macron comfortably ahead of their political rivals on around 25 and 24 percent of the first round vote respectively.
However, Macron is seen winning by an overwhelming majority over Le Pen if, as looks increasingly likely, the two were to go head-to-head in the second and final round of the vote on May 7.
In the event of Le Pen losing out to Macron, or any other candidate, JP Morgan said in a note published Monday that a surge of inflows into European stocks could be expected. It estimated at least 10 percent of assets under management could flow back into Europe's stock markets assuming Le Pen was unable to defy the election odds.
Despite the opinion polls, UBS advised caution in assuming Macron would emerge victorious in May. The bank had forecast Le Pen would stand a 40 percent chance of becoming president of France in mid-March.