In Europe and North America, governments and regulatory authorities are still debating how best to manage the behaviour of financial institutions that have become so large that should they fail, their operations would pose a systemic risk to the nations in which they are located.

This relatively new phenomenon, a function of economic globalisation, threatened last year the collapse of the entire international banking system.

Despite this, and a resolve that nothing of its kind should happen again, the Group of 20 leading industrial economies is finding it difficult to agree a way forward.

As this is being written, discussions are under way aimed at trying to achieve by later this year a consensus on how to avoid another banking-led recession, how to exit the fiscal and monetary stimulus schemes put in place to restore financial liquidity, and how far governments should go in regulating financial institutions so they never again threaten the global economic system.

Competitive advantage

Achieving a consensus, let alone implementing any agreement on these issues, will not be easy. Having created a loosely-regulated, liberal and highly competitive global market, the past winners, London and New York, and their respective governments, are reluctant to do anything that will lessen their competitive advantage or by extension, weaken their domestic political standing.

For the most part, the Caribbean will be a bystander in this process, watching how the developed world agrees a new global financial architecture, and then trying to adapt the region's on-shore and offshore financial environment in order to be in compliance.

This may not be enough. The Caribbean remains particularly vulnerable to the actions of economic actors larger than its small economies. The financial problems experienced by CL Financial and the consequent damage illustrate clearly what happens when there is no regional oversight of a company based in one jurisdiction but operating trans-regionally.

Notwithstanding, this is an issue that goes beyond the financial services industry. By definition, small and seemingly impossible to integrate Caribbean island economies are likely to be at risk from any arrangement able to dominate economically.

Whether this comes in the form of the preferential arrangements that Europe had in relation to bananas, rice and sugar, the provision of oil on concessionary terms from Venezuela, or say, a hotel so large as it dominates employment, there is a danger that any change in circumstance can, fraud apart, unintentionally threaten the viability of small nations.

The PetroCaribe arrangement with Venezuela is a case in point. Of extraordinary benefit to the region, offering support in the face of high global energy prices at a time of economic difficulties, its economic dominance is also a potential threat should it be varied significantly or ever come to an end.

Economic dependence

Judging from the apparent surprise across the Anglophone Caribbean when Venezuelan officials first told governments in July of their desire to review the PetroCaribe arrangements, it would seem that the nature of Caribbean economic dependence on the arrangement seems not to have occurred to some heads of government.

Then, in the depths of a global recession and after a period of depressed global oil prices, many beneficiaries of PetroCaribe seemed shocked to learn that Caracas wanted governments in arrears with their payments to meet their commitments and for all beneficiaries to enter into a discussion on the future terms of the arrangement.

What happened then and subsequently is a matter of some debate, but a number of Caribbean leaders have suggested in recent weeks that Venezuela has proposed that PetroCaribe members pay up to 80 per cent of their bills rather than the current 40 per cent within 90 days of receiving a delivery. This claim is being denied by the PetroCaribe Secretariat, which has said that Caracas had never considered changing 'the terms of the time of payment', or increasing 'the percentage of the bill that is paid in cash'.

In doing so, the PetroCaribe Secretariat did, however, say that "options under study aim to separate the obligations of payment in cash from the price of oil through the establishment of a single rate" in a manner that would protect countries from volatile price swings and "reduce the percentage of the amount to pay in cash below what the current accord contemplates at current prices".

Detail apart, what is becoming clear is that Venezuela is now the single most important economic actor in the Eastern Caribbean - for instance, pressure on Antigua to meet its PetroCaribe obligations could have damaged the Eastern Caribbean currency system - and is likely to hold as much as 35 per cent of the Caribbean's external debt by 2015.

All of which is not to be critical of Venezuela's support, but to point to its growing economic dominance in many small Caribbean economies and to the broader implications for instance for the region's relations with the International Monetary Fund and other donors.

Taken together, all these developments point to a much broader problem that the Caribbean has yet to find a 21st-century answer to: how to relate an ever-more dominant process of economic globalisation, trade liberalisation and external investment to its desire to retain its economic sovereignty.

Lack of confidence

In recent months, the Anglo-phone Caribbean has demonstrated that it understands this dilemma well but has yet to find a viable alternative development model. Its inability to move forward the single market and economy, the rejection of the Economic Partnership Agreement with Europe by large swathes of civil society, the distaste for migration in certain nations, and the difficulties associated with deepening relations with the Dominican Republic all speak to a lack of confidence in being able to sustain national integrity in the face of powerful external economic forces.

Logic would suggest that the solution to maintaining sovereignty lies in effective regional or more probably sub-regional integration and the emergence of strong regional or sub-regional governance. Unfortunately, recent experience and the economic pressure each nation now faces suggests that this may be an increasingly difficult objective to achieve.

David Jessop is director of the Caribbean Council. Email: david.jessop@caribbean-council.org.