There’s another important vote going on in Europe this weekend

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The Italian referendum has been hogging the headlines, but there is another crucial vote in Europe this weekend: in Austria.

Voters will head to the polls this Sunday to pick a president and the choice is between a Green politician and a far-right populist candidate from Freedom party, which was formed by former Nazis in the 1950s.

Polls have given a small lead to the right-wing candidate, Norbet Hofer, over the Green nominee Alexander Van der Bellen, raising fears that Austria might become the first European country with a far-right leader since the Second World War.

Sunday's election is important "because Austria would be the first core euro zone country with a populist president. It would also be another wake-up call for Germany as it would show them that populists can win, and that more or less close to home," Carsten Brzeski, chief European economist at ING Germany told CNBC via email.

Investors may have been distracted by Italian referendum -- and the threat that a no vote could lead to snap elections and further shocks to the country's banking system --but analysts believe we should sit up and take notice of Austria.

"Austria is a small country. Italy is a big one." But they have "equally problematic politics," Peter Dixon, economist at Commerzbank, told CNBC over the phone.

Brzeski added that "markets are focusing on the size of the economy and the potential for drama… totally overlook(ing) the symbolic effect, the Austrian elections could have."

Though the presidential role is symbolic, it has the power of calling snap elections.

"The president could even lead to new elections and a populist government. It needs a series of very unlikely if's and when's but this did not prevent markets from speculating on a worst-case scenario in Italy," Brzeski said.

The likelihood of a far-right politician becoming Austria's next president is another example that Europe is in "significant political volatility," Dixon added, saying that populism had started to play an influent role in mainstream politics.

Some analysts argue that the influence of populist parties in European politics has become more evident following the Brexit vote. With key elections across the bloc in 2017, investors are carefully assessing how European voters might change the political landscape.

Austria electing a far-right president would be "the confirmation of a trend," Guntram Wolff, director of the think tank Bruegel told CNBC.

Although Wolff does not see risks of contagion from the Austrian election in next year's French and German votes, he does believe populism is here to stay.

"Populist backlash is on the way," Dixon added.

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