The former Gunners midfielder was baffled by the decision to drop Petr Cech for the midweek loss to Olympiakos.
It was a decision that came back to haunt him as a goalkeeping howler from the Colombian saw the Greeks grab their second goal in an eventual 3-2 win on the night.
Wenger has been roundly criticised for the decision, and Merson says he was baffled by the choice.
"It was a must-win game for Arsenal and they should have played their best team," he told Sky Sports.
"For Arsenal to make one signing for the whole year and not play him in the two biggest games of the season so far is beyond me. People say Arsenal have made it difficult for themselves but, for me, progression is now out of their hands.”
Manchester United game now a must-win for Arsenal
Up next are Manchester United, who currently sit top of the table with 17 points from a possible 21, having won their last three league games, as well as beating Wolfsburg in midweek.
It will be a big game for both sides on Sunday, but Merson says it is now a crucial encounter for Arsenal.
"The Manchester United game is a must-win game,” he added.
“Arsenal have put themselves under severe pressure now. There is not much that can be changed in terms of players; obviously the goalkeeper has to come back in. He is a world class goalkeeper, you play your best players.”