>> It will be very interesting to see how the Greeks respond to this. <<
Here’s what I think probably will happen, regardless of whether the Papandreou government gives into the EU:
1. truly terrible rioting in the streets of Athens and other Greek cities
2. attacks on the EU’s local office and on the German, French, British and American Embassies
3. burning of German banks and other foreign businesses
4. whopping declines in the Euro/USD and Euro/BP exchange rates
5. Greek economic misery that lasts for years
It also seems within the realm of possibility that Greece will pull out of NATO and that tensions with Turkey will escalate to the boiling point, up to and including military confrontation in Cyprus or along the Greek-Turkish border.
(And wouldn’t the Turks love to reclaim Salonika after so many years!)
(1), (3) and lesser extent (4) have already happened. I think Papandreou needs to dissolve Parliament and call an election as a referendum as to whether Greece wants to stay with the Euro or dump it.