Britain will commit about £7 billion to help Ireland resolve its financial crisis, a policy the government will find hard to sell to struggling British taxpayers at a time of spending cuts.
Chancellor of the exchequer George Osborne told parliament that Britain would take part in the international financial assistance package for Ireland announced yesterday, as well as offering its stricken neighbour a bilateral loan.
"We are doing this because it is overwhelmingly in Britain's national interest that we have a stable Irish economy and banking system," Mr Osborne told the House of Commons.
The EU and the IMF agreed yesterday to help bail out Ireland with loans to tackle its banking and budget crisis in an attempt to safeguard Europe's financial stability.
Britain exports more to Ireland than it does to emerging powers Brazil, Russia, India and China combined. Mr Osborne said the neighbours' banking systems were inter-connected, adding that British banks were now well capitalised and therefore well placed to manage any impact from the Irish crisis.
Mr Osborne did not put a figure on Britain's participation in the rescue package during his statement to parliament. But during an interview earlier on BBC radio, he was asked about reports that Britain would contribute about £7 billion.
"It's around that (figure). It's in the order of billions not tens of billions," he replied.
Mr Osborne also said Britain would not join any permanent EU bailout mechanism.
He was pressed on the terms of the aid to Ireland, particularly on what interest rate would be charged on the bilateral loan, but said details were being worked out. "We are not seeking to make a buck out of this, we are seeking to help our friend," he told MPs.
The decision to take part in the Irish rescue effort is politically difficult for the British government.
The coalition has launched a harsh programme of public spending cuts aimed at reducing Britain's budget deficit, which is running at a peacetime record of over 10 per cent of GDP. Mr Osborne said any aid to Ireland would not add to the deficit.
The spending cuts are expected to result in half a million public sector job losses and in millions of Britons receiving lower benefit payments from the state, making contributions to the Irish bailout hard to explain to British voters.
The Irish issue also risks reviving a long history of infighting among Conservatives on the subject of the EU.
Many Conservatives see the euro as fundamentally flawed and blame Ireland's woes on its decision to adopt the currency. In their eyes, Britain was wise not to join and should not have to spend taxpayer money on what amounts to rescuing the euro.
"We shouldn't be putting our money on the table in order to prop up the euro ... At a time of austerity at home, yet again we're being asked to pay vast sums to the EU," Conservative legislator Douglas Carswell told the BBC.
Mr Osborne tried to address discontent among fellow Conservatives by reminding them that he too was a fierce critic of the euro who had always argued Britain shouldn't join, but a major crisis in the euro zone was not in Britain's interest.
"It is in everyone's interests that we make the euro work. 'I told you so' is not much of an economic policy," he said.
But comments like Carswell's will be unwelcome to Osborne and to Prime Minister David Cameron, who once told his party to "stop obsessing about Europe".
Disgruntled Conservative legislators could further complicate prime minister David Cameron's job as he struggles to maintain unity with the Liberal Democrats.
A much more pro-EU party, they are not expected to rock the boat over Ireland, but they are at odds with their Conservative partners over a series of other domestic issues.
Sweden said today it would offer Ireland up to €1.5 billion.
Bloomberg