A lack of competitiveness, not credit default swaps (CDS), brought Greece to the brink of financial catastrophe, former Greek Finance Minister Yannos Papantoniou told CNBC.com Wednesday.
Many blamed CDSs for sending the Greek economy into a freefall, and the European Commission has discussed how to regulate CDSs amid claims that they precipitated the Greek debt crisis.
But Papantoniou disagreed "I don’t think CDS was the reason," he said.
"It was a loss of competitiveness over the past five years in relation to other European economies.” But Papantoniou warned that default is “death for Greece,” and that the EU needs to get its act together and save the country.
“I’m not very happy at all with the response of the euro zone," he said. "They’ve been extremely slow in making decisions. Germany has also been unconstructive.”
The EU has proposed a creating a European Monetary Fund responsible for bailing out, with strict conditions, a EU member country in the brink of default, and also a European Treasury, responsible for tax policy oversight and government spending coordination of EU member countries.
But strong EU interference in areas such as taxation and budget have been harshly criticized by other member nations, and some senior German policymakers have said that emergency bailouts should bring harsh penalties to EU aid recipients such as Greece.
A Greek default could open the window for Germany to leave the euro zone, Papantoniou said.
“The EU has no coordination of fiscal policies," he said. "The Greek crisis has brought all the euro zone’s weaknesses to the surface.
There needs to be a common budget policy, and provisions on what should happen if a country needs to be bailed out.”
Greece needs two things in order to solve the Greek crisis, “One: income, obviously, which is dealt with in the proposed austerity measures, and two: privatizations, entrepreneurship, making private investment easier will help Greece avoid a long recession,” Papantoniou said.
The public sector accounts for almost 40 percent of Greece’s gross domestic product. The Greek economy also faces problems with including unemployment, inefficient bureaucracy and corruption.
The Greek government requested that the EU/IMF bailout package be activated on April 23. The size of the bailout is expected to be €45 billion ($61 billion), with a payout within weeks of €8.5 billion of Greek bonds becoming due for rollover