The European Union is the culmination of a dream that is at least 100 years old. It was envisioned by pre-World War I socialists as the natural evolution of the nation state.

In practice, however, it leaves much to be desired.

A currency exchange that is totally messed up; bureaucrats running wild; a parliament that dreams up ever more inventive ways to confiscate the citizen's property; all this and more is the modern EU.

But now, faced with its first genuine financial crisis, the EU is proving to be a paper tiger and worse, paralyzed by its inability to deal with the almost certain sovereign default of Greece and perhaps other member states.

Ken Prewitt and JoAnne Norton of Bloomberg has the story:

Greece will default on its bonds "at some point" as the euro region fails to deal with its first major economic crisis, said Paul Donovan, deputy head of global economics at UBS Investment Bank.

"I think it's in an impossible situation," said Donovan, who is based in London, in an interview with Bloomberg Radio today. "Europe has failed to clear its first serious hurdle. If Europe can't solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn't work. It's a bad idea."

European governments have yet to agree on how to fund any rescue for Greece, which says it will struggle to pay its debts at current market interest rates. While Prime Minister George Papandreou announced a 4.8 billion euro ($6.4 billion) austerity package on March 3, the extra yield that investors demand to hold Greek debt over German counterparts has since risen.

The spread was at 324 basis points today compared with 316 points at the start of the month. The euro fell 1 percent today to $1.3358, extending its decline this year to 6.7 percent.

EU leaders meet in Brussels tomorrow after a week dominated by a split between Germany and France over whether the International Monetary Fund should pay for a bailout. Chancellor Angela Merkel says her voters shouldn't foot the bill for Greek excess, while French President Nicolas Sarkozy says Europe needs to show it can solve its own crises.

While there are some analysts who strongly disagree with Mr. Donovan, the fact is, in order for Greece to avoid collapse, it must cut government spending by 25% - an impossible feat for any government, much less a socialist one. Trying to cut half that amount brought tens of thousands of Greek government workers into the streets protesting pay cuts and other austerity measures.

The question is; what happens when the rest of the EU faces the music for their unsustainable welfare state spending? Or what if America can't pay its own bills?

Cinch it up and hunker down; we're in for a bumpy ride.