Ireland has ceded to pressure to accept a bailout of up to £77bn from the European Union and the International Monetary Fund.
The deal is to be finalised in the next few weeks and will see liquidity loans handed to Ireland’s debt-laden banking system.
The EU hopes to head off a collapse that could damage the eurozone economy and single currency. The UK will provide up to £7bn to the scheme, including direct loans.
Ireland will launch a four-year budget deficit reduction plan as part of the bailout on top of austerity measures it has already undertaken.
Irish prime minister Brian Cowen said: “Irish banks will become significantly smaller so they can gradually be brought to stand on their own two feet once more.
We must have faith in our ability as a people to recover and to prosper once more.”
The bailout comes after a £643bn package of eurozone support in May following the £94bn rescue of Greece, which policymakers had hoped would prevent market sentiment eroding.
Brewin Dolphin chief strategist Mike Lenhoff says the Ireland bailout has removed “a large element of the instability” that could spread to Portugal and Spain. He says: “This has been pretty forthright, unlike the Greece experience. They have confronted the issue and markets have been far less upset about the whole thing.”