Denis McShane: There will be no hiding place for Britain as the great Greek crisis heads towards us fast

LIKE grandfather like grandson. In 1967, George Papandreou the elder threw in the towel as political and economic instability plunged Greece into chaos.

Now it is the turn of his grandson, also George Papandreou, to say game over. In the 1960s, the Colonels stepped in. Today, the spectre of military rule has been replaced by efforts to form a government of national unity as Greece desperately strives to maintain its status as a European nation, instead of reverting to a semi-bankrupt Balkan state closer to the values of the Ottoman Empire rather than modern Europe.

The call for a referendum which delighted the numerous Conservative MPs who think a European referendum is the magic solution to all that ails England has turned out to be a ruse.

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Papandreou has sacrificed himself – for the time being – to force all of Greece’s political class to accept their responsibility.

Greek Conservatives have been berating the centre-left reformist Papandreou ever since he won power with a narrow majority two years ago.

But New Democracy, as the Greek Tories are called, were in power in the years when Athens lied consistently about the state of its public finances.

The average declared income for tax purposes of professionals like journalists or architects was about £10,000 a year.

Greek politicians of all political hues conspired over decades to deny the need for economic modernisation.

The arrival of the euro with its low interest rates made the problem far worse as cheap money that could import northern European goods was easily available on credit.

And don’t blame just the Greeks.

The City, as well as French and German banks, were able to post profits and claim bonuses on the basis of nominal deals and loans awarded to Greek politicians and businesses whose commitment to truth make Homer look like a strictly factual writer.

Can the bitterly divided Greek Conservatives and Socialists really form a coalition government that can maintain confidence and win support under a technocratic prime minister without an electoral base?

What we may be witnessing in Greece is a soft coup. The Colonels are not in power but men in suits without a democratic mandate are now to be in charge.

As with the Colonels in 1967, the Greek crisis is a symptom of a far deeper systemic political and economic crisis that is slowly convulsing all of Europe.

Even the United States, with its record levels of unemployment and simultaneously the widest recorded gap between the rich and poor in American history, is not immune.

After 1945, the democratic world enjoyed a 30-year era of mixed economy welfare state capitalism. The 1970s were a transition decade with terrible strikes, the IMF having to dictate terms to Britain, and major political changes in France and Germany.

The 30-year era that followed was personified by Ronald Reagan and Margaret Thatcher but across the world economies were liberalised and banks started creating obscure products that flooded the world with money which was easy to borrow.

Private and public debt soared. Labour ministers turned a blind eye but they were egged on by George Osborne who famously held up the housing bubble Irish economy as one for Britain to emulate.

Point scoring is now pointless. Even in Britain, a coalition government is necessary to try and steer Britain out of its present flat-lining economy.

The Western democracies are again in a transition period as the era of market liberalisation, a reduction of salaries and wages in favour of unearned investment income, combined with easy credit and ever-mounting debt, exploded in our faces in 2008.

If Labour ministers failed to spot the disaster early enough, Conservative ministers have not produced an adequate response. Exports are shrinking despite the weakest pound in British history. Unemployment and inflation are rising remorselessly to create a new misery index.

Add in the David Cameron’s European dilemma based on his promising over years in opposition the Three “R’s” of Referendum, Repatriation and Renegotiation which he cannot deliver on in government, and the marginalisation of Britain as a major European player is now plain to see.

Some write of a power shift to Asia or rising economies. But China is a creditor nation because the rest of us buy Chinese goods. Brazil, India, Australia and Canada all run trade deficits while the eurozone as a whole is in equilibrium as it exports as much as it imports.

In the past, one populist response was protectionism. If we stopped buying Chinese or German goods, we would have less debt. Whether in Europe or globally, we cannot all be exporters without any nation being an importer.

That is why the pressure must be on the creditor nations to help support the indebted nations via the EU or the IMF as they try and stabilise their economies.

The European Central Bank has cut interest rates which is a step in the right direction.

Greece can stay in or quit the euro but the crisis is spreading north and west fast.

There is no hiding place for Britain. Using pounds and not euros means little. David Cameron is on the hardest learning curve for a British prime minister in generations. But the answer will not be found on one country. Politicians are condemned to be internationalists if nations and perhaps democracy are to survive.