The Fragility of Trust

A recent episode in the ongoing tale of the euro-zone crisis provided object lessons about trust. The first lesson is that trust if fragile. The second lesson is that violating trust unleashes powerful forces with unexpected consequences.

The critical incident was sparked by a proposal to levy a 6.75% tax on all bank accounts, large or small. This plan violated the insurance on the first 100,000 euros in a single bank account. Cancelling insurance is a fast and direct way to undermine a relationship.

On the second lesson, the reaction was quick and intense. People demonstrated in the streets of Cyprus. Europeans in countries with strained banking systems began losing confidence in the quality of insurance for their own bank accounts. International currency traders began bidding down the euro. News articles in the Britain and the USA speculated on the security of their domestic bank deposit insurance systems.

By violating a fundamental element of a trusting relationship, people lost confidence in all aspects of that relationship and similar relationships. People in other countries began losing faith in their own systems despite the absence of connections with the Cypriot banking system.

Cyprus is a small economy that is inconsequential within the scope of international banking. However, relationships are universal. A world in which one nation can walk away from fundamental commitment to people is one in which others can do likewise.

Although few managers are running a national banking system, they all relate to people. Their working relationships have symbolic as well as functional value. Others observe the level of civility, respect, and trustworthiness of their social encounters. Observers use that information to reduce the uncertainty that the future holds.

The short-term gains from breaking trust can bring intense and far-reaching repercussions. Although your work may have nothing to do with Cypriot banking, it surely has a lot to do with trust.

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