Prince Harry captured. 600 of our soldiers killed. In this terrifying plausible account, DOMINIC SANDBROOK imagines the day the Argies retook the Falklands

The date is July 27, 2012, and in London the Olympic Games are about to begin. For months, the British people have been looking forward to the jamboree of patriotic enthusiasm.

But now that the day is here, the mood feels heavy with gloom. The crowds are thin, the drizzle pours down. The Union Flags hang forlornly in the dull breeze.

Even the nation's new Prime Minister, the blinking, stammering Ed Miliband, cuts a remarkably limp figure, a melancholy leader for a nation sunk in misery.

British soldiers were forced to surrender to the Argentinians at Port Stanley in 1982

Several thousand miles away, across the cold seas of the South Atlantic, the atmosphere could hardly be more different. For in the capital of the Islas Malvinas, the archipelago formerly known as the Falkland Islands, an Argentine victory parade is underway.

Though victory in the Second Falklands War was secured only a few weeks ago, the islands' conquerors have already been busy.

At the tiny airport that serves Puerto Argentino — formerly Port Stanley — a gigantic mural commemorates the soldiers from the mainland who lost their lives.

Beside the old Anglican cathedral, draped with a massive blue-and-white flag, the statue of President Cristina Fernandez de Kirchner gazes impassively out to sea.

For the Iron Lady, as her adoring country-men call her, the war was a turning point, securing her place in South American history for all time.

But for Britain, battered by months of economic austerity, it was a tempest that swept away the Coalition government and destroyed any lingering illusions that the United Kingdom was still a serious power.

As the Argentine troops parade triumphantly down Avenida Leopoldo Galtieri, a few miserable islanders stand and watch. Many have already booked their flights back to Britain, sick of the Spanish road signs and posters of Diego Maradona.

Powerless: Britain's Prime Minister is the stammering Labour Party leader Ed Miliband

The tragic irony, of course, is that we should have seen it coming.

When in December 2011, the South American trading bloc Mercosur (comprising Brazil, Argentina, Paraguay and Uruguay) voted to ban boats flying the Falklands flag from docking in their ports, many people shrugged their shoulders.

But a few brave souls warned that this was merely the latest shot in a diplomatic campaign that, if left unchecked, could turn into outright war.

As far back as February 2010, Mrs Kirchner had begun sabre-rattling over Britain's supposedly 'illegal' oil drilling off the Falklands. With her own economy sunk in crisis and oil experts predicting a windfall beneath the Atlantic, the Argentine president was playing a long game.

Meanwhile, military experts warned the Coalition that its projected cuts would make defending the islands simply impossible.

Under the terms of the Strategic Defence and Security Review, the government had committed itself to scrapping the Harrier Jump Jets and decommissioning the aircraft carrier HMS Ark Royal, effectively hobbling its capacity to strike back against an Argentine invasion.

In October 2010, Admiral Sir Sandy Woodward, the architect of victory in the South Atlantic in 1982, warned that a surprise attack would be 'highly likely to succeed'.

Thanks to the swingeing cuts, he insisted, the Argentines could take the islands 'with barely a shot being fired'.

But to their eternal shame, the Coalition ignored his warnings. And they even ignored an even more aggressive bout of sabre-rattling from Mrs Kirchner, who declared the following summer that Britain was merely a 'crude colonial power in decline'.

All this, however, was merely a taste of what was to come.

Overrun: Stanley Cathedral in the capital of the Falklands would be draped in a blue and white flag

The Mount Pleasant airbase is a key strategic site 38 miles away from Stanley

For as 2011 neared its end, the Argentine president was keeping a close eye on events in Europe.

Heartened by the freezing of relations between Britain and its Continental partners, Mrs Kirchner calculated that the rest of the European Union would never back Britain's claims to the disputed islands.

Indeed, discreet signals from Paris indicated that President Nicolas Sarkozy would look kindly on an Argentine invasion, since it would bring David Cameron to heel. Over Christmas and New Year, Argentina's military chiefs drew up their plans.

The islands, they told their president, were protected only by 1,000 British soldiers, four Typhoon fighter jets, a warship, and, from time to time, a nuclear submarine.

'Thanks to the cuts, there is little chance that the British would muster an adequate response to the liberation of the Malvinas,' wrote her principal military adviser. 'What is more, the international position has never been more favourable. If we strike now, we will enjoy the support of our neighbours as well as the muted encouragement of Great Britain's European rivals.'

What appealed to Mrs Kirchner was the fact that the spring of 2012 would mark the 30th anniversary of the first Falklands War, in which Margaret Thatcher's intrepid British task force had retaken the islands.

Indeed, some reports suggest that it was her outrage at Meryl Streep's triumph at the Oscars for the Thatcher biopic The Iron Lady that made up the Argentine president's mind.

As the weeks progressed, Argentine intelligence kept a close eye on events in Britain. Behind the scenes, they reported, the Coalition was increasingly divided.

And with Britain's economy plunging back into recession, Vince Cable quitting the Cabinet and the anti-capitalist Occupy movement spreading to city centres across the country, the South Americans knew the time was right.

Late on April 2, 2012, the anniversary of their first invasion, Argentine Special Forces landed on a deserted beach south of Port Stanley. By the early hours of the following morning, they had stormed the nearby British barracks and were heading for Government House.

Argentinian leader Cristina Fernandez de Kirchner (right) would have a statue on the islands

In London, the reaction was bedlam. In a packed House of Commons, David Cameron promised he would stop at nothing 'to get our islands back'.

But already cracks were forming. On the streets of London, anarchist protesters chanted 'Give Them Back!'

And on the floor of the Commons, Labour's Ed Miliband told MPs that Britain should not fire a single shot without the approval of the United Nations.

By the middle of April, Mr Cameron had given his approval to the formation of a task force to retake the Falklands. But already it was obvious that it would be a far more desperate undertaking than it had been under Mrs Thatcher.

Without Harrier jump jets or aircraft carriers, the Prime Minister's naval chiefs explained, the mission would be hazardous to say the least.

What was more, the national mood had never been more divided, and even the battle for public opinion would be a close-run thing.

When Mr Cameron told the Royal Navy to go ahead anyway, the Lib Dem Environment Secretary, Chris Huhne, walked out of the Cabinet. But that was now the least of the Coalition's worries.

Their spin doctors ensured that the departure of the flotilla was a good show, though even sympathetic observers found the spectacle of Sir Steve Redgrave, who had been roped in to encourage the troops from his rowing boat, frankly bizarre.

But Britain was losing the struggle for world opinion. In the U.S., Barack Obama, facing a tough re-election battle, promised audiences that he would stay out of the conflict.

'My predecessors allowed themselves to be dragged into foreign conflicts of which we know nothing,' he said to loud cheers. 'I will not make the same mistake. My motto is simple: America first.'

Most South Americans naturally backed Argentina. What was shocking, though, was that the EU failed to voice its support for Britain.

Royal Marines in San Carlos raising the Union Jack during the Falklands War

Indeed, even before the Task Force had reached Ascension Island, President Sarkozy had made a dramatic intervention that horrified British observers.

Twenty years before, the French had provided political support for Britain, allowing Harrier pilots to train against the French aircraft used by Argentina — though in a typically cynical Parisian twist, it was the French-made Exocet missiles that did so much damage to British ships. But now the mood was very different.

'Our British friends need to learn that their days of glory are over,' said Mr Sarkozy.

'The Malvinas — for so we should call them — properly belong to Argentina. It is mere arrogance for mon cher David to think otherwise.'

As the temperature mounted, so the European pressure grew.

Just days before the Euro 2012 football tournament was scheduled to start, Uefa President Michel Platini announced that England had been kicked out of the tournament — because, the Frenchman said, half-suppressing a smirk, the team posed an insurmountable 'security risk'.

For the Coalition, the European betrayal was a dagger in the heart. And in a sign of the ugly public mood, Miriam Gonzalez Durantez, the Spanish wife of the Deputy Prime Minister Nick Clegg, was subjected to a hail of vile abuse on the streets of London.

The famous image of British troops yomping towards Port Stanley, on the Falkland Islands, with the Union Jack flying in June 1982

The next day saw Mr Clegg turn up at Cabinet with red-rimmed eyes. And when the Prime Minister next rose to speak in the Commons, his deputy was absent.

His presence, Mr Cameron said, would have been a 'distraction'. But there could be no distraction from the disaster unfolding in the South Atlantic.

The Task Force was a pale shadow of its incarnation in 1982. Back then, Britain had a total of 92 destroyers, frigates, attack submarines and amphibious ships. But thanks to years of cuts, by 2011 it had just 33.

Indeed, plans to send Britain's nuclear submarines had to be scrapped when it transpired that, thanks to the decision to lift the ban on women serving beneath the waves, they were undergoing a £3 million refit to make them 'female friendly'.

What followed was a disaster. The air war went the Argentines' way; three British ships were sunk; and when, in desperation, commanders mounted a last-ditch landing at San Carlos Bay, the British troops were picked off by their South American adversaries.

Nobody doubted the courage or expertise of our fighting men and women. The tragedy was that they had been stabbed in the back, betrayed by a government that had slashed defence spending to the bone.

By then, the Coalition was in meltdown. Speaking in the Commons on May 12, Ed Miliband insisted that it was time for Britain to 'face reality'.

A few hours later, the Lib Dems announced that they were leaving the Coalition and hoped to form a new government with Labour. The very next afternoon, as Samantha Cameron was carrying her Smythson luggage out of Downing Street, President Obama told a campaign meeting in Yorktown that the 'British Empire is over'.

In Buenos Aires, cheering crowds poured into the streets.

'Just rejoice at that news and congratulate our forces and the Marines,' Cristina Fernandez de Kirchner told Argentine television.

Tears: News that Prince Harry, who had insisted on serving on the front line, had been captured seemed only to pile humiliation on humiliation

In London, however, there were only tears. Some 649 British servicemen had been killed, with more than 1,000 wounded and no fewer than 11,313 taken prisoner and shipped to an internment camp outside Buenos Aires.

News that Prince Harry — who had insisted on serving on the front line — had been captured seemed only to pile humiliation on humiliation.

And though the Argentines promised to release him in time for the Olympics, the day has come and yet he is still in captivity.

For Britain, the war has been the ultimate calamity. Our economy is in ruins, our national morale is at rock bottom and our reputation is in tatters.

Many experts insist that it could have been so different if only the Government had taken heed of the warnings, stiffened the Falklands defences and remembered their duty to defend Her Majesty's people.

But on the lonely streets of what was once Port Stanley, there is no appetite for what-if scenarios. There is only the sadness of defeat and the bitter taste of occupation.

Under the UN resettlement plan, the English-speaking islanders will soon be gone.

Soon enough, too, there will be no more reminders of a British presence that lasted for hundreds of years.

The air is cold; the bars are empty. And in the night air there is just the lingering sound of the tango, like some mournful lament for what might have been.