U.S. markets should pay careful attention to the upcoming French election because the slate of candidates have widely divergent views on how to run the economy and the role of the state, analyst Peter Boockvar told CNBC on Thursday.
Far-right candidate Marine Le Pen, who has indicated she is willing to take France out of the European Union, would “create some chaos” for the markets, the chief market analyst with market research firm the Lindsey Group said in an interview with “Power Lunch.”
“A couple weeks ago I would say she had no chance,” he said. “It’s a big deal.”
He also thinks the election of far-left candidate Jean-Luc Melenchon would raise concerns over taxes and social spending.
While French President François Hollande passed a 75 percent tax, “Melenchon wants to pass 100 percent tax above certain incomes,” Boockvar pointed out.
Such policies would reduce a one percent growth rate to zero or even reverse it, the CNBC analyst said.
Other contenders in the French election are centrist Emmanuel Macron, conservative Francois Fillon, and far-left Benoit Hamon. The April 23 vote is widely expected to lead to a top-two runoff on May 7 if no candidate gets more than 50 percent, a result widely expected.
So markets are closely watching to see how the choices available to voters shapes up between the left, right and center candidates.
“We can actually celebrate a Fillon or a Macron victory because it would be a real change in complexion in terms of the business attitude in French politics,” Boockvar said.
If France elects a candidate who pushes for an exit from the euro, here’s how Boockvar thinks it might play out: A newly reintroduced franc could be pegged to the euro for several years, allowing all transactions to be virtually underwritten by the re-introduced currency for a period of time.
“My guess is that over a multi-year period they’ll have almost a parallel currency, and tell everybody over the next five years we’re going to shift back to the French Franc,” Boockvar said.
He thinks the currency would eventually become free-floating.
“It’s not something you can just rip a band-aid off because that would just be a disaster,” he noted.
Still, he said the potential for a more even outcome for markets exists.
“I’m still having my fingers crossed that it’s Macron that will end up winning and cooler heads will prevail,” said Boockvar.