IRISH PEOPLE still have not grasped the gravity of the economic crisis that has gripped the euro zone and do not appreciate how bad things could get, according to a former economics minister in the Argentinian government.

Speaking to The Irish Timesat an economics festival in Kilkenny yesterday, the minister for economy and production in Argentina in 2007 and 2008, Martín Lousteau, said that travelling across Europe over the past three years, he felt people, businesses and government officials had been almost oblivious to the dangers.

He said the choice being faced in the euro zone was whether “to save countries or financial systems”. He suggested that too much attention had been focused on the latter option. Mr Lousteau was in Greece earlier this year and said the similarities between it and Argentina in the months before its default in 2001 were striking. He said the weaknesses of the political system and the strength of the unions were very similar.

“My sense is that Greece is in a downward spiral but still thinks it can avoid the major restructuring which is needed,” he said.

While Ireland was being held up as the poster child of austerity measures, he was unconvinced the austerity programme which had been imposed by the troika would work in the long term.

According to Mr Lousteau, fundamental flaws in how the euro zone was structured and the manner in which it favoured stronger economies like France and Germany, at the expense of peripheral states, would have to be addressed if the currency was to have a sustainable future.

“Greece is certainly going to default and if it is an orderly default it will be better, but no matter how it happens it is going to be hard,” he said. “Pumping money into the country might postpone things but unless the competitive edge which it lost when it joined the euro is addressed, then in the long term, the problems will happen again.

“In Argentina we said the debt was our fault but it also the fault of the banks and the markets which lent to us. We tried to keep on paying an unsustainable debt for four years, the economy kept on shrinking – it shrank by 20 per cent – and eventually people took to the streets.

“In the first days of the protest, 21 people were killed but then the government said that they were not going to pay the external debt and we went into default. “

He said that immediately after the default in Argentina, “it was pretty nasty as not only did we have default, we had devaluation. There was 50 per cent of the population living in poverty.”

Offering one glimmer of hope, he said that that while the pain was very severe, it did not last very long. Within eight years of the worst point of the crisis, the Argentinian economy had doubled in size.

However, he also warned that the problems in the euro zone were more intractable because individual states did not have control of their own currencies and some lacked the production capabilities that had existed in Argentina a decade ago.

He said states across the euro zone, on which pressure was put to sell state-owned assets to raise money in the short term, were making a major mistake. “Yes, you can privatise everything you can but if you do, you sell all you assets at the worst possible time when they command their lowest possible price.”