Euro zone finance ministers meeting in Brussels on Monday won't make a final decision on aid for Greece, despite Athens passing a new austerity budget. But one former European Central Bank (ECB) official has told CNBC that Europe must give Athens more time.
Urging Europe to extend Greece's debt maturities, former ECB board member Lorenzo Bini Smaghi told CNBC that it was a critical moment for Europe to help and not hinder Greece.
"Greece was asked to do a series of things that they have done. Now it's the rest of Europe that needs to find a solution and help Greece come out from this situation," he said, stating that there were several options available to Europe to assist Greece.
"They can lengthen the maturities, they can reduce interest rates — there's no point asking for high interest rates. There are so many ways in which the official sector can contribute, they need to do that," Bini Smaghi said in an interview at London's Chatham House.
On Sunday night, Greece's parliament approved a 2013 austerity budget that could save the country from bankruptcy ut aid for Athens could be delayed, because of disagreements between the European Union and the International Monetary Fund (IMF), according to the Financial Times, over how much debt relief should be afforded to Greece.
Bini Smaghi said that methods to deal with countries with high debt were known to organizations such as the IMF and that the public sector doesn't have to "mark to market," a reference to paper losses that would have to be borne by the ECB and European governments if Greece was given more time or lower interest rates.
"If you lengthen the maturities, the net present value may be reduced but that's the way to ensure debt sustainability is assured."
Bini Smaghi added that Greece also needed "much more time" to introduce austerity measures and needed more bridge loans to tide it over.
"They [Europe] need to put an end to this situation," he said, denying that it could set a precedent for other struggling economies such as Spain and Portugal. "The heads of state always say that Greece is special..they went to very special measures that do not apply to other countries."
There is added time pressure for a deal on Greece as Athens has to redeem 5 billion euros worth of treasury bills on November 16 and was relying on funds from the next euro zone aid tranche to tide it over.
Since the money will not be available in time, the country now expects to issue new one-month and three-month treasury bills on Tuesday to refinance itself.
One Greek official told Reuters that Athens was confident that the t-bill rollover would be fully funded.
"We are very confident the issue will be rolled over without any problem," a senior debt agency official told Reuters on Monday. "We have liaised with the ECB regarding the ceiling on the outstanding stock of t-bills and there is no problem."
Europe to Blame for Greece
Meanwhile, one economist told CNBC that Greece's problems were of Europe's making and that any moves by the euro zone to save Greece could be in vain anyway as Greece will probably leave the euro zone in 2013.
Costas Lapavitsas, professor of economics at SOAS University in London said Europe has created a "monster" out of Greece through its economic mismanagement of the country's debt situation and the work going into salvaging Europe's most troubled economy will likely come to naught.
"I would be amazed if Greece remained a member of the euro zone in 2013," Lapavitsas told CNBC on Monday.
"But that is not the end of the story. Greece cannot handle the euro discipline, it needs to get out, it needs to revive its competitiveness," he said.
In a signal to its European and international paymasters, Greece's fractured coalition showed a rare sign of unity in its approval of the budget. That followed another vote last Wednesday when Greece's parliament passed further austerity measures. The show of solidarity under pressure showed Greece's sense of urgency in securing a further tranche of crucial foreign aid — which will save it from imminent bankruptcy.
(Read More: Greece Running Out of Cash; Government Under Threat)
Professor Lapavitsas told CNBC Europe's "Squawk Box" that Greece needed to leave the euro rather than adhere to an endless set of punitive austerity measures.
"It needs to put its economy back on track and the current set of measures don't do that," he said, alluding to the vote on further austerity measures that have slashed 9.4 billion euros ($11.9 billion) from the pension, welfare and public sector wage bill amid a backdrop of growing public anger and protest.
Though the Greek prime minister Antonis Samaras has said there would be no more spending cuts for Greece, Professor Lapavitsas said the measures, approved against a backdrop of widespread public opposition, would lead to "severe contraction and long-term stagnation."
"I would expect political and social unrest sooner, rather than later, unless Greece gets out of the euro," he said, adding that under the apparent unity of the Greek coalition, "the weakness remained."
Time Running Out
Before Greece can receive any further aid, a report on the state of the country's finances must be completed by the troika of international creditors who visited the country earlier in the year.
Professor Lapavitsas said that the fundamental problem of Greece's debt – and its future repayments of billions of euros worth of debt would remain until there was a writedown.
(Read More: Germany's Words of Support as Greek Debt Worsens)
"Debt is the major problem and that must be dealt with through a write-off," he said, adding that though he doesn't exonerate Greece from the part it played in its own economic disaster, Europe was to blame for debt mismanagement in Spain, Portugal and Greece.
"Europe has created a monster out of the Greek debt problem…Debt forgiveness for Greece- which is absolutely necessary, is now much, much more complicated," he said. "Greece owes a lot of money, this is not a small amount. We're talking about hundreds of billions of euros."
Professor Lapavitsas said that the volume of Greek debt had increased since official involvement from euro zone monetary institutions.
"After two and a half years of so-called debt management and rescue, what's happened is that the total volume of debt has actually increased and the composition has changed against Greece," he said.
"Greek debt used to be about 300 billion euros, it was in Greek bonds and could've been written off under Greek law…Now, [however] it's multilateral debt — debt owed to official lenders. It's a matter of public policy in Europe about who's going to take the losses."
Over 70 percent of Greece's debts are now owed to official lenders such as the European Central Bank and International Monetary Fund. Private-sector bondholders agreed to a haircut on their bond holdings earlier in the year but Germany is so far resisting calls for further debt relief for Greece.