Don’t watch Papandreou. Do watch the Greek banks.

Most of the focus in the Greek debt crisis has centered on Greek
(Petros Giannakouris - Associated Press) prime minister George Papandreou. After all, he was the guy who threw the entire European bailout deal into disarray by calling for a referendum. And later today, he faces a no-confidence vote in the Greek parliament.

But economist Daniel Gros at the Centre for European Policy Studies, says our eagle-eyed focus could be misguided: if we want to understand the future of the European debt crisis, we ought to be watching Greece’s banks rather than its political leadership. “It’s difficult to get good data,” he says. “But I’m trying to watch the Greek banking system to see whether there’s a rush to withdraw deposits. Right now, it’s been surprisingly slow. but if it accelerates that could spell the end.”

Why the political instability hasn’t lead to a bank run is a bit puzzling to Gros. “You’d have to be Greek to answer that,” he says. But I had him game out for me what would unfold if Greeks do start withdrawing funds en masse as political instability mounts.

“If there’s a run on the Greek banks, how can they actually satisfy that?” he asks. “Greece doesn’t have any more collateral to give the European Central Bank. Then the question becomes, will the European Central Bank give them any more loans?”

Greece and the European Central Bank have had a bit of a bumpy relationship: as The New York Times reported earlier this year, Greek banks have felt “pressured” to stop relying on a central fund. In May, the European Central Bank stopped accepting Greek bonds as collateral for loans to Greek banks.

But the prospect of a Greek default poses a difficult decision for the ECB. If it says no more loans, that’s probably the end: the Greek banks default, and that sends a shock of instability through the euro zone. “Will it say yes one more time? It’s very tough,” says Gros.

What could prevent all this? Gros ticks off a number of policies, including requiring European Union deposit insurance or not allowing a bank to have all of its sovereign debt in one country. But all of those would have had to have been implemented before the mess Greece is in now. The options on the table in the current moment are much more limited.

“It’s too late,” says Gros. “The only thing the European Central Bank can do is mitigate the situation. And the only thing we can do is just watch what the Greeks are doing.”