EXPERT COMMENT A Le Pen victory could unleash a tsunami of economic volatility

Professor Panicos Demetriades has suggested that a victory for Marine Le Pen in the second round of the French presidential elections could 'unleash a tsunami of economic volatility', in an article for The Conversation.

In the article Professor Demetriades, from the University's School of Business, said: "When it comes to the implications of a French exit from the European Union, commentators have so far focused on the €1.7 trillion of French public debt issued under French law – which can be re-denominated into francs, if France leaves the eurozone. According to the rating agencies, this would constitute the largest ever sovereign default.

"By comparison, Greece’s sovereign debt restructuring, which affected €200 billion of debt held by the private sector in 2011-12, appears miniscule. While the timing of a French default remains uncertain, French sovereign bondholders are likely to flee en masse the moment they realise their baseline scenarios – which do not account for a Frexit – are wrong.

"Although a sovereign default of such magnitude could unleash a tsunami of volatility in international financial markets, that is only the tip of the iceberg. The roll-out of a new currency across the economy would create new and unprecedented solvency and liquidity risks, which could cause financial turmoil, if not chaos, early on in the life of the new government."

He added: "French voters would be wrong to think that Brexit, and the relative calm that the UK has experienced since its Brexit vote, is a relevant precedent. In all likelihood, a Frexit would need to be fast forwarded to prevent complete economic paralysis. Even if the new government manages to swiftly introduce its new currency, the French economy would inevitably enter a high inflation environment with disruptive capital controls and a rapidly depreciating currency. This does not even take into account the real costs that increased protectionism, also pledged by Le Pen, would entail."