This is the written version of my keynote lecture held at the Italian Society for Law and Economics in Turin in December 2011. I wish to thank Giovanni Ramello, Peter Behrens, Axel Moeller, an anonymous referee and the participants of the conference for valuable comments

The European central bank is a bank of banks but not a bank of states. This reduces the capabilities of member states to finance deficits. The role of the central bank to cope with the debt crises is institutionally more limited than in most other Western countries. The European Stability...