EU Excels in Turning Victory into Defeat

This was pegged as the summit to end all summits; the end of the euro-zone debt crisis; a clear road map for the future.

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Ilan Arad | Getty Images

The markets had high hopes, but turning victory into defeat is something that European Union leaders are very good at.

After the surprise deal at the extraordinary summit on March 11, optimism abounded. But now, as the clock ticks closer to the deadline, roadblocks are springing up all over Europe.

Finland, a country not normally known for causing trouble, is about to go to the polls and its prime minister claims not to have a mandate to make big decisions like signing off on greater fire power for the current bailout fund.

Germany's Angela Merkel is facing voters at home and wants to hand out tax breaks. She can't do that and fund bailouts at the same time.

And, of course, the spotlight is now on Portugal, where the collapse of the Socrates government leaves the country leaderless at a time when putting together a bailout deal is going to require some delicate negotiation and critically cross-party support.

And then there is Ireland.

Dublin, Paris and Berlin all seem to be working towards the same goal, but with markedly different approaches.

Ireland’s newly-installed prime minister is, for the time being, holding firm on the country’s low corporate tax rate.

But French President Nicolas Sarkozy views a concession in that area as crucial in order to reach a deal to lower the interest rate on Ireland’s bailout loans, currently an unsustainable 5.8 percent.

The lack of compromise is worrying and the market is now really starting to fret. Irish 10-year yields are now north of 10 percent -- .

The common currency may be on a roll against the dollar, up 7.7 percent over the past three months, but investors shouldn’t be fooled.

The euro’s strength has been driven more by ECB President Jean-Claude Trichet’s hawkish language and fears of the fiscal state of the United States.

The market needs to come to grips with reality and price in the more problems for the euro zone. This highly-anticipated summit will not deliver a solution. It's only going to highlight challenges the bloc still faces.