Greece on edge of collapse!

Europe was teetering on the edge of disaster last night as fears grew that the Greek government is about to collapse.

Markets nosedived around the world, with billions wiped off the value of Britain’s leading firms, as Athens announced extraordinary plans to sack its military leaders amid rampant speculation that it was trying to head off a coup d’etat.

‘It’s all over. The government is about to collapse,’ said one Greek official. Greece’s former deputy finance minister Petros Doukas agreed: ‘The **** has hit the fan.’

Economists warned that if Greece rejects the debt deal hammered out only last week, which would entail years of austerity, the entire future of the single currency is in peril.\

They predicted that Italy, Spain and Portugal are likely to be plunged into a profound economic crisis because of their failure to get to grips with their towering debts.

Greek officials are due to meet for crisis talks today with France and Germany in Cannes, ahead of a G20 summit on which the European economy now appears to hinge.

As prime minister George Papandreou fought to save his own skin, he horrified other European leaders by proposing a referendum on the debt deal.

Greece's Prime Minister George Papandreou took European leaders and many in his own parliament by surprise with his announcement of a referendum

This would be an effective vote on whether or not Greece should remain in the straitjacket of the single currency and accept years of spending cuts and tax rises, or simply refuse to pay what it owes and crash out of the euro.

Last night the referendum appeared dead in the water as his colleagues moved against the Greek leader, threatening a snap election that he looks certain to lose.
But the opposition is, if anything, more hostile to the bailout and austerity package than Mr Papandreou, and although there would be no referendum it would demand an even bigger write-down of the nation’s debts than the 50 per cent agreed with the EU and International Monetary Fund.

The sense of crisis in Athens – ruled by a military junta as recently as 1974 – was compounded by an unexpected announcement that Mr Papandreou intends to dismiss the chief of the defence staff and the heads of the army, navy and air force.

That raised speculation about the possibility of a military coup in Greece, an outcome said to have been deemed possible in a secret assessment by the CIA.

Greek-Cypriot Nobel economics laureate Professor Christopher Pissarides, of the London School of Economics, said: ‘Before 1974, when politicians were arguing and fighting, the military came in and said, “Come on now, let’s stop, there’s military rule until you sort it out”.

‘Since 1974, of course, democracy has worked, but it’s worrying when you have news about armed officers being replaced right in the middle of an economic crisis.’

Agreement: Germany's Chancellor Merkel and French President Nicolas Sarkozy have called a crisis meeting to push ahead with bailout plans after Greece announced it will hold a referendum on the deal

The Foreign Office in London played down the prospect of a military takeover, saying officials in Athens were insisting that the Government had planned for some time to clear out its top brass.

But one British diplomatic source said: ‘Clearly with everyone talking about the country being in turmoil, the timing is odd.’

The most likely scenario is that the government will press ahead with a vote of confidence on Friday, which it looks likely to lose. An interim government will then be appointed before a snap election.

Last night a Greek government spokesman said Mr Papandreou had told the Cabinet he would hold a referendum seeking approval of the bailout deal come what may, and was determined to win Friday’s vote of confidence.

French President Nicolas Sarkozy said the proposal for a referendum had ‘surprised all of Europe’ and the hard-fought European bailout plan for Greece was the ‘only way possible’ to resolve that nation’s debt crisis.