According to Wikipedia:
Credibility refers to the objective and subjective components of the believability of a source or message. Traditionally, modern, credibility has two key components: trustworthiness and expertise, which both have objective and subjective components. Trustworthiness is based more on subjective factors, but can include objective measurements such as established reliability. Expertise can be similarly subjectively perceived, but also includes relatively objective characteristics of the source or message (e.g. credentials, certification or information quality).Secondary components of credibility include source dynamism (charisma) and physical attractiveness.
Credibility is at stake in Europe, the IMF-EU-ECB Troika reached a deal this weekend for an official program in Cyprus that includes bail-in through taxing bank deposits (already discussed in the morning post). This is uncharted territory for the Eurozone, as deposits have always been fully protected during the periphery crisis. It is a different form of PSI (private sector involvement) than the sovereign debt haircut in Greece, but still a PSI.
The decision to tax deposits in Cyprus raises some concerns. This is a line that the Eurozone had not crossed so far in the periphery crisis. It goes against the goal of a banking union, as a euro in a bank in Cyprus is not the same as a euro in a bank in the rest of the Eurozone.
Assuming the deal is approved by the Cypriot parliament and a bank run is avoided in Cyprus, there are no immediate implications for the rest of the Eurozone. However, despite European assurances that Greece was a unique case and now Cyprus is a unique case, it is a logical consequence to believe that PSI schemes will always be on the table from now on in the Eurozone, if debt dynamics prove to be unsustainable in other countries as well.
And what about the trust people had in their banks ability to taking care of their savings?
As per the Wikipedia definition credibility has two components: trustworthiness and expertise.
People do not trust anymore in the banking sector expertise after the 2008 events and the European banking collapse (people in the street understand that the European crisis is a mix of banking crisis and political crisis). Trustworthiness has been lost this weekend… what are they left with?
Europe has to re-build the “Credibility” in its banking system, will the “Cypriot mess” speed up the creation of the European single banking supervision mechanism?