The club have offered the veteran manager a new deal but no decision has been made as of yet
John Giles feels Arsenal made a mistake by publicising the fact that they were offering Arsene Wenger a two year new deal.
The long time Gunners boss has yet to reveal whether he has decided to sign or depart amid pressure over poor results, leading to uncertainty.
Arsenal's 10-2 aggregate loss to Bayern Munich in the Champions League last-16 means the London club have not reached the quarter finals for seven years and it's 13 years since Wenger led the club to Premier League glory.
Speaking to Off The Ball, John feels the uncertainty is detrimental for Arsenal and also doesn't think it would be a good thing if Wenger publicly announces a decision to leave before the end of the season either.
"It's never a good thing. I know when I was a player, it's a very insecure profession anyway and you want to believe when you've got a manager, he's going to be there forever," he said.
"I think what Arsenal made a big mistake in doing a couple of weeks ago was that he was offered a two year contract and Wenger's response was 'well, I'm going to be in management next year whether it's here or somewhere else', so he didn't actually sign the contract. That's not good for the club or the players.
"The likes of Sanchez could say, 'What are they on to me about if we don't if the manager is going to be here?' The players have to believe that this manager has to be here forever."
He compared the situation to the first time Alex Ferguson had revealed he would retire as Manchester United manager back in 2001 which had a knock on effect on results.
John also gave his take on the epic Barcelona comeback against Paris Saint Germain, pointing out that the bad signs for PSG were evident from the point that Angel Di Maria was left on the bench and felt they were "demoralised before they went on the pitch".