I can't find any good resources (a quick google search shows that this incident doesn't really appear outside of Cracked and anti-GMO websites), but I don't believe this organism would be able to cause any harm in the way suggested. This bacteria produces alcohol at a cost, for no benefit to itself. It would quickly get out-competed in the wild by other similar, less wasteful bacteria, or it would quickly evolve to stop producing such pointless amounts of alcohol.
I had an idea a while ago that's quite similar to this; chlorophyll most strongly absorbs blue light, followed by red, and absorbs green least of all. But the most abundant wavelength that reaches Earth's surface is green! What if you engineered a plant with a completely new pigment that absorbed most strongly at green wavelengths? Would it outcompete all other plants on the planet?
Even in that case, I doubt it. It can't fill all the varieties of niches occupied by the world's plants, who have the advantage of already being highly specialized. The super-plant may outcompete the plants in the niche it most closely fills, but other plants would most likely be unaffected; the new plant can't do their jobs as well as they can.
EDIT: Here is a note from the Green Party of NZ, apologizing for incorrectly citing the original paper and making grandiose claims about the destruction of all plant life:
4) The Green Party also would like to make clear in regard to the same paragraph, that the published literature shows that when a genetically engineered Klebsiella planticola was added to one particular type of soil with plants, plants unexpectedly died. The correct reference for this paragraph is MT Holmes, ER Ingham, JD Doyle, CS Hendricks "Effects of Klebsiella planticola SDF20 on soil biota and wheat growth in sandy soil" Applied Soil Ecology 11 (1999) 67-78.
5) This is an example of an unanticipated effect from the introduction of a genetically engineered organism. It should be taken to say no more nor less that that. The Green Party does not believe the published research so far supports the further conclusion that the likely effect of allowing a field trial of the genetically engineered bacterium to go ahead would have been to destroy all terrestrial plants.
It would depend on other things, too, like where it would live by design. A floating life form, tolerant of salinity fluctuations (as happen in freshwater ecosystems), producing clonal offspring and with developed rhizoids (to take up inorganic nutrients) might be very handy from engineering point of view, but a disaster if it breaks free.
As to Green parties, well, they earn money.
Does anyone know something about this alteration of Klebsiella planticola? Paywalled paper here. (If someone has got access please PM me, I would like to read the paper to write a more fleshed out article.)
While I am not convinced that it would really have spread to every terrestrial ecosystem, or even every wheat field and I am not even sure if it could compete successfully with the wild type, I certainly would not bet the world on that. Even if it might only have become a nasty crop bug instead of an ecosystem killer, I think this may be the closest encounter with a true existential risk we have had so far. This suggests, that even our current low end biotech may be the greatest existential risk we face at the moment. Or is this just hyped bullshit for some reason I do not see right now (without reading the paper)?
Edit: Upon reading the original paper I am quite sure Cracked.com greatly exagerated the potential threat. 10^8 cfu (colony formin units) K. planticolata per gram soil (dry weight) was added on day 0, but after 8 weeks only 10^2 cfu survived (this is true for both wild type and modified K. planticolata). This suggests, that K. planticolata in the wild has typical densities more like 10^2 cfu per g than 10^8 cfu per g. 10^2 cfu per g is nowhere near enough to produce lethal ethanol concentrations in the soil, even if the modified strain could compete in the wild. Furthermore the concentration of the modified K. planticolata decreased faster than the concentration of the wild type suggesting reduced fitness of the GMO. On the other hand after 8 weeks both K. planticolata strains arrived at the same density of 100 cfu per g indicating comparable medium term survivability in unsterilized soil (I am not sure if indigenous K. planticolata which could compete with the GMO was present in the soil sample used). Yes, they did avoid the obvious failure mode of not differentiating between wild type and modified K. planticolata during recovery of K. planticola strains from the samples.