A Sluggish Europe Is 'Searching for Scapegoats'
As Western economies come to terms with a sustained period of low growth and an inability to afford its social commitments, nationalist and isolationist movements will increasingly come to the forefront, HSBC's chief economist Stephen King told CNBC on Monday.
King argued that the benefit culture of Western countries is only sustainable through continued economic expansion - something he said was highly unlikely.
"We've been living beyond our means," King said. "From benefits through to financial claims - including those on pieces of paper, like bonds - society will have to reduce these claims and go back on their promises."
For King, with growth far weaker than that experienced in the 20th century, people will have to be stripped of entitlements - such as pensions, healthcare benefits and social security - which will create social upheaval.
King's argument is outlined in his latest book, "When the Money Runs Out". He said that while the stimulus reaction of most countries in response to the 2008 financial crisis ensured a major depression was avoided, there has been naive belief from many that a recovery would be quick.
(Read More: Austerity 'Does Not Deliver': HSBC Chief Economist)
"Policy makers felt they could avoid a depression and then return us to a situation prior to the financial crisis quickly," King told CNBC. "For a normal recovery, for example, the U.S. has an extraordinary ability to bounce back. So the fact that we are having a debate at the moment about whether the U.S. will see gross domestic product of 2 or 3 percent - that is where the problem comes from. The nature of the recovery is unusually muted."
The economist argued that the baby-boomer generation's entitlements must be scaled back, but that this will cause problems. He also spoke about the current debate over Britain's involvement in the EU.
"Some of the mood music coming through is of a typical nationalism in response to stagnation: you want someone to blame, whether its the Europeans or the immigrants. It's a blame game. It's not just economically worrying but politically worrying too," he said.
(Read More: EU Battle Heats Up: '50% Chance UK Out in 5 Years')
"I was concerned with the lessons of history where a persistence of economic weakness forces people to find scapegoats - even, for example, to the rise of anti-Semitism at times during the last century. These are examples of where a systematic failure that no one can control leads to cultural blame and mistrust. Those levels of mistrust lead to suspicion in society, which undermines markets, as they rely on trust," he said.
While some reviewers have called King's book "apocalyptic," the author said there are remedies for the Western world.
Firstly, there needed to be more international agreements to ensure the West recovered, King said. And secondly, the euro zone crisis would be solved through a political union alongside debt restructuring in Southern Europe. Finally, with the U.S. and U.K. in particular, there needed to be a debt reduction plan, which would be flexible enough to allow stimulus if another recession occurred.
While King was adamant he was not being apocalyptic, he did admit that he was trying to rid economists of their current "optimism bias."