Key Points:

It projects an image of idyllic beaches, whitewashed churches and quaint fishing villages, but Greece has been plunged into its worst crisis in decades this week after a policeman shot dead a 15-year-old schoolboy.

The country known to millions of British tourists as a package holiday paradise of sun, sea and souvlaki this week looked more like a war zone as thousands of protesters fought running street battles with riot police.

Authorities seem to be struggling to hold the line. Police sources said they were running out of teargas after using more than 4600 capsules in a week and, from the safety of a European Union summit in Brussels, the Prime Minister pledged to protect citizens.

"They say Greece is the founder of democracy but the system we have now does not function," a masked protester in Athens told the Herald on Sunday. "Greece may look like part of Europe but it doesn't work like the rest of Europe - the state here has failed."

These are the streets built by one of the first great civilisations; the plakas that welcomed New Zealand's 18 Battalion in World War II. But now on Constitution Square, even the distinguished Hotel Grande Bretagne, which has hosted leaders as diverse as Adolf Hitler, Winston Churchill and Helen Clark, has been ransacked and its windows smashed.

The spark that ignited the tinder box that is modern Greece was the fatal shooting of 15-year-old Alexis Grigoropoulos by a police officer last weekend.

The teenager was one of 30 youths who allegedly attacked police with bottles and stones, shouting, "Cops, we're going to burn you alive," according to the officer's statement.

Epaminondas Korkoneas, 37, said he fired two or three warning shots, one of which ricocheted and struck the boy in the chest.

His lawyer said that version of events was corroborated by a preliminary post-mortem report, which showed that the bullet entered at an angle that could not have come from a direct shot.

The claim was met with anger and cynicism by most Greeks, who have grown weary of police killing in cold-blood and then getting off scot-free.

"Everybody knows this is a big lie," taxi driver Spiros Papadopolos said with disgust. "But this is how things are in Greece. For sure, the policeman won't be jailed. It has happened many times before."

In the most serious crisis since the end of the military junta in the early 1970s, shops and restaurant windows have been stoved in and interiors set on fire as riot police squared up to hundreds of hooded protesters.

"The whole country is going through a nervous breakdown," said Alexis Papachelas, editor-in-chief of the conservative daily Kathimerini.

"Greece is in self-destruct mode. A whole range of problems have accumulated over the years and have now reached a critical point."

Afraid of more deaths or injuries, Prime Minister Costas Karamanlis told police to act defensively - responding to direct attacks but otherwise allowing rioters to burn and loot at will. It appears to have been a huge miscalculation, encouraging night after night of violence.

Karamanlis' New Democracy Party was elected on a wave of euphoria in 2004, after 20 years of rule by the Socialist Party. But since then the Government has been damaged by corruption scandals, the mishandling of wildfires, in which more than 60 people died, and the unpopularity of its economic reforms.

At a press conference in Brussels, Karamanlis vowed to guarantee the safety of his country and its citizens: "Greece is a safe country," he insisted.

But for a seventh consecutive night, beneath the spectacularly-lit Parthenon that looms over the city, thousands of residents protested against the Government on Friday (Saturday morning NZ time), while gangs of masked youths threw petrol bombs and stones, set up flaming barricades and taunted the police.

An acrid haze of smoking refuse and tear gas hung over the worst-hit parts of the city.

The violence spread like a virus to nearly a dozen other cities, from Thessaloniki in the north to the islands of Rhodes, Crete and Corfu in the south, familiar to generations of British package tourists.

Greeks are being squeezed by high unemployment, low wages, the rising cost of living and public debt which is almost equal to the country's national output, in part a legacy of the 2004 Athens Olympics, which left a bill of more than 10 billion ($24.4 billion).

Dimitris, 24, agreed to talk through the bars of the front gate of Athens Polytechnic - which has a long tradition of resistance to the authorities - but like all the protesters refused to give his full name.

He had a deep cut to his forehead - the result, he said, of a police officer hurling a chunk of rock which had previously been thrown at police lines by demonstrators. The Herald on Sunday witnessed police officers doing exactly that during several nights of mayhem on the streets of the capital. The rest of his face was hidden by a hood, scarf and dark glasses.

"Our number one demand is that the police should be disarmed of their guns. I think this is how they operate in the UK, no? So that the shooting of kids like Alex will never happen again."

Manolis, 23, who makes honey on an island in the Aegean for a living, came to Athens to vent his anger at the state of Greece. "We have some of the lowest salaries in Europe, we have high unemployment, we have the most corrupt police in the EU. Young people have nothing to look forward to."

As the global recession bites deeper, there are fears that things will only get worse - and not only for Greece.

Already this week there have been sympathy protests in cities across Europe, from Madrid to Moscow, Barcelona to Bordeaux.