Efforts to rescue Greece have failed to provide the basic structural reforms needed to help bring competitiveness to its economy, said John Lipsky, the International Monetary Fund’s former first deputy managing director.

“It has been frustrating because some of these have been clear from the outset in so many ways,” Lipsky said in an interview in Copenhagen Wednesday. “I feel this process could have been handled so much better.”

Europe is pressuring Greece to step up efforts to rein in its deficit and deregulate the economy. The austerity measures are exacerbating the nation’s economic pain and won’t lay the foundation for a lasting recovery, Lipsky said. Greece is complying with the terms set by eurozone leaders in the hope of getting a 31 billion-euro ($40 billion) aid payment this month to help recapitalize its ailing banks.

“It has been so frustrating to see how little the discussion has centered around what are in fact the underlying issues, the truly seminal issues, for Greece, which have been its progressive loss of competitiveness in the euro zone,” Lipsky said. “If that can’t be remedied, there will be no successful solution for the Greek economy, one way or another.”

Greece, which faces a sixth year of recession, needs to remove trade barriers and become more export-oriented to have any hope of returning to growth, according to Lipsky.

“When you look at the very limited degree, the astonishingly limited amount of foreign trade in Greece’s gross domestic product, considering the tiny size of the country, you realize one way or another that special interests have been successful in keeping the Greek economy out of the single market,” he said. “That needs to be remedied and that requires acting effectively against, among other things, the special interests, protective markets, quasi-monopolies, inefficient state enterprises.”

The government of Prime Minister Antonis Samaras wants two more years until 2016 to meet targets for narrowing the deficit, a concession that would create additional funding needs on top of 240 billion euros in aid pledged to the country since 2010.

With 5 billion euros of 13-week Treasury bills expiring on Nov. 16, the Samaras government has been negotiating with the euro area and the IMF over the steps needed to qualify for the release of loan installments frozen since June. Meanwhile, unemployment in Greece has reached 25 percent.

The Greek government said Wednesday the economy will shrink 4.5 percent in 2013, compared with an Oct. 1 estimate for a 3.8 percent contraction.

“I am always pained by the characterization of the issue as one of growth versus austerity, as if that were the issue of immediate consequence,” Lipsky said. “The issue is underlying structural reform. If economies like Greece, Portugal, and ultimately Spain and Italy, cannot recapture lost ground in terms of competitiveness in the euro zone, it is hard to see how they are going to achieve economic and financial success.” [Bloomberg]