Known as the father of the Stability and Growth pact (SGP) which limits public debt and deficits in the eurozone, Waigel underlined Athen's responsibility in the crisis.
But he added that EU institutions also proved incapable of preventing it, exposing a weakness that needs to be addressed.
EU leaders are meeting in Brussels on Thursday (16 September) to hammer out new rules for the bloc's economic governance following the Greek crisis.
"Greece fiddled with the numbers, which is quite a nasty trick," Waigel told EurActiv.de.
"However, the [European] Commission and the other institutions should have questioned Greece’s budget figures much sooner. The country should not have joined the euro zone under such circumstances."
Waigel was the brains behind the SGP, adopted in 1997. Berlin had long maintained a low-inflation policy, which had been at the base of the German economy's strong performance since the 1950s. The German government had hoped to ensure the continuation of that policy through the SGP which limits government's ability to exert inflationary pressures on the European economy.
'Unpardonable mistake'
But according to the former minister, Europeans have played with fire when they loosened the Pact's rules in 2005, under pressure from Paris but ironically also from Berlin, which was under a Socialist-led government.
"The virtually unpardonable mistake was committed of watering down the Pact. In particular Germany, the creator of the Stability Pact, did not play by the rules under the previous governing coalition," Waigel added, rejecting suggestions that economic growth imbalances among euro members was the root cause of the problem.
"The federal states of the USA have highly divergent economic models and yet share a common currency," he argued.
Waigel insists that it is necessary for the members of the euro zone to stick to the criteria and for them to be monitored more effectively. "We need a better early warning system and better sanction procedures," he stressed.
Cutting EU funds 'most efficient sanction'
"If a state falls foul of the criteria it should be threatened with cuts to its EU funds. This sanction would also be possible without treaty change," Waigel said referring to ongoing debates about the feasibility of such sanctions.
"Cutting funds is the quickest and most efficient method available," he added. "As soon as EU financing for large structural projects - such as the extension of motorways - is discontinued, the pressure on the government to respect the criteria will grow".
The former finance minister also dismissed radical claims in Germany at the time of the Greek bailout on whether or not to help failing states.
Eurozone is 'like a family'
"It is like a family: I am not responsible for the debt that my brother, my sister or my children have amassed. But if I want to help them, there is certainly no-one who could deny me this right. I have to make my help conditional, though, define it clearly and present it as helping them to help themselves," he said, noting that the same is true for the EU.
Asked about economic governance, Waigel insisted the EU needed greater coordination of our budgetary policy.
"I do not mind at all if budget plans are submitted to the Commission before being accepted and if the Commission then issues an opinion. On the contrary, I think the ‘European Semester’ can help a country to achieve budgetary discipline at home," he said, noting that what matters are uniform European rules that are put into practice on a national level.
The same is true for the rating agencies, argued Waigel. "These are two points where Europe can really make great progress. Here the EU can say: ‘This is our European model, we do not want to depend on Wall Street anymore," he ended.
