There's a key risk in Europe that everybody is missing

Upcoming European elections, especially those in France and Germany, have many Wall Street economists on edge as the wave of populism sweeps the globe.

For many, the focus is on whether there is a path to electoral victory in the likes of Marine Le Pen of the right-wing populist National Front party in France, or the far-right Alternative for Germany (AfD) party that has made gains in the wake of the migrant crisis and Brexit victory in the UK.

What people aren't paying enough attention to however, is the impact that these populist parties can have even if they don't win.

The European project is increasingly being questioned, said Schroder's Global Head of Multi-Asset Allocation Johanna Kyrklund, who is based in London, in an interview with Business Insider.

"If you take the example of the UK, we didn't need the UK Independence Party to win the election for us to end up with a referendum and leaving Europe ... so extreme parties can impact policies even without winning elections, particularly when you are dealing with coalition politics which is often the case on the continent."

She notes that the central scenario is that the establishment candidates will win, but she believes that the gaining popularity of more populist movements will cause a "shift in the center of gravity in Europe."

For example, even if Le Pen doesn't win the French election in May, the sheer number of her supporters will undoubtably influence the policy of the winning party.

"What tends to happen is that when you start getting more extreme parties doing well, some of their policies then get adopted by the more mainstream parties in an effort to support their popularity," Kyrklund said. "So that's why we're worried."

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