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Europe's $955 billion rescue package, Greek austerity, and moral hazard

Markets across the world soared after the European Central Bank promised the creation of a $955 billion rescue fund for eurozone countries with debt problems. But some economists are worried about moral hazard – bailouts leading to reckless spending.

Stock traders work at the Frankfurt Stock Exchange in Frankfurt am Main, Germany, on Monday. Stocks across the world soared after the European Central Bank (ECB) promised early Monday morning the creation of a $955 billion rescue fund for eurozone countries with debt problems.

Mario Vedder/dapd/AP

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The European Central Bank (ECB) promised early Monday morning to create a €750 billion ($955 billion) fund to bail out countries in the eurozone when they get into debt trouble and to act in both government and corporate bond markets as a buyer of last resort.

Stocks in Europe and across much of the world soared in response. The US benchmark stock index, the Dow Jones Industrial Average, rose as much as 4 percent in morning trading, reversing a large plunge last week on concerns of spreading European financial trouble and slowing global growth.

The euro rose as much as 3 percent against the US dollar and the yield on the Greek government's 10-year bond plunged as investors bet the risk of default – something investors were deeply afraid of in recent weeks – had fallen dramatically. (See factbox below.)

But while the ECB's move cheered investors, it alarmed some economists.

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