in the economic union there are multiple sovereigns. the economic union allows member states to define new and expanded economic borders while the political borders remain the same. we are faced with both a challenge and an opportunity to create a new state with the unique characteristics of both an economic and political union. ultimately we will have to conceive of an arrangement that provides for a dual system of government, governance and economic management. in all of this, the fundamental question which must be posed is, “ what are the benefits to the people of the oecs which will be derived from an economic union in the face of our current and future challenges? ” bis central bankers ’ speeches these challenges come from three sources : 1. the international arena ; 2. the caricom region ; and 3. our domestic circumstances. the international arena poses some significant challenges to us, given our openness and vulnerability to external shocks. the global recession has vividly exposed these vulnerabilities and the internal structural deficiencies of our very small economies. the major sources of foreign exchange, namely, tourism receipts, foreign direct investments and remittances have been negatively affected by the recession. the slow recovery in the economies of our traditional trading partners, because of the depth of the recession, and its continuing impact on employment and their financial systems, will clearly also affect our recovery. the global economy is also going through significant shifts in terms of the supply and demand for critical commodities such as oil, food and iron ore. these shifts have been exacerbated by the effects of climate change in the case of food, and political turmoil in the case of oil. significant improvements in technology, particularly ict and transportation, as well as more sophisticated supply chains are also having a significant impact on production cycles. there are also significant global imbalances in trade and foreign exchange reserves between the mature economies and the new emerging markets such as china, india and brazil which have resulted in a shift in global economic power and influence. within caricom, the major issues are stagnation in the progress towards the single market and economy and the uneven distribution of benefits to member states. at the national level the principal challenges are : the secular decline in growth over the last three decades ; high levels of unemployment and poverty ; declining government revenues as a consequence of the recession ; increasing debt to gdp ratios ; and increasing levels of crime and socially deviant behaviour. the challenges are daunting and cannot be successfully met without a concerted and

collective effort by our states and societies. this can be posed as a two step process. within each state there must be consensus on the way forward. the body politic and civil society must come to an agreement and understanding on the medium to long - term goals of our countries and the requirements to achieve them. in addition, in the economic sphere there must be meaningful integration through : ( a ) the provision of information on employment opportunities, investment possibilities, and potential markets for goods and services ; and ( b ) the facilitation of linkages between economic sectors, for example, agriculture and tourism, and between the public and private sectors. as a practical matter at the national level there must be a good road network and an efficient internal transportation system, as well as efficient and reasonably priced seaport and airport services and facilities. at the economic union level there must be sectoral production integration which will be facilitated by : bis central bankers ’ speeches efficient and reasonably priced air and sea transportation ; free movement of goods and services, capital and labour ; and effective coordination of economic policies. this process of internal restructuring and integration will usher in a new entity with a different persona and brand, both regionally and internationally. there will be a significant increase in physical size, population and gdp. the new treaty provides for a regional executive with legislative powers, alongside a regional legislative assembly with discussive functions. this is paralleled at the local level by cabinets and the national legislatures. the judiciary has long been regional and will be consolidated through the absorption of the magistracy. the oecs arrangement, due to the existence of a monetary union, already has features of an economic union. it also has regional regulatory functions in the areas of banking, securities markets, telecommunications and civil aviation. there has also been a very high degree of functional co - operation. in response to the global crisis, the oecs and the eccu have also introduced significant institutional arrangements such as : a joint meeting of the authority and the monetary council ; and sub - committees of the council to treat with the management of financial stability issues in banking, insurance, credit unions, and international finance. finally, there are four major areas which are critical to the success of the new entity. the first of these, justice, law and order, is the primary public policy goal of each state and in this case would involve, in my view, the regionalisation of the courts, the police and prison services. transportation is a sine