Europe's deepening debt crisis could mean Irish Prime Minister Enda Kenny's first austerity budget, set to be unveiled next week, is just a foretaste of worse to come raising the stakes for the state as it seeks to exit an EU-IMF bailout in 2013.

Kenny has pledged to get Ireland's budget deficit, currently the worst in the industrialised world, under an EU limit of three percent of GDP by 2015 from an estimated 10 percent currently and was counting on 2012 being the worst in a fresh four-year run of belt-tightening.

But with Europe in danger of tipping back into recession as its financial crisis implodes Kenny may be forced to push through even harsher budgets in 2013 and beyond if Ireland's trade-dependent economy fails to produce sufficient revenues to meet its EU-IMF goals.

Unfortunately there will be several years of trying to restart the economy and keeping international markets happy, said Melanie Bowler, economist at Moody's Analytics, which is forecasting Ireland and the euro zone to fall back into recession next year.

Ireland already raised its adjustment target for 2012 to 3.8 billion euros from 3.6 billion euros due to a weaker growth outlook with nearly 60 percent of the adjustment coming from spending cuts.

A Reuters poll on Thursday showed that economists expect Ireland to miss its medium-term fiscal goals due to the threat of a recession in Europe.

The 2012 budget was meant to be the harshest of the next four with an adjustment of 8.6 billion euros pencilled in for 2013-2015 as the government seeks to reassure investors its debts are sustainable and can meet its goal of exiting an 85 billion euros EU-IMF bailout in 2013.

Kenny's four year plan, which comes on top of four years of austerity under a previous administration, means that Ireland will have squeezed some 33 billion euros (28.3 million pounds), representing nearly a fifth of GDP, out of an economy that is hoping to transform itself from European basketcase to recovery story.

But with the external backdrop darkening, analysts are sceptical that Ireland can avoid asking Europe for more assistance when the current package runs out in 2013.


Heaping further austerity on top of the existing measures would not only delay a recovery in the domestic economy, still smarting from the worst recession in the industrialised world, but could derail the sort of social and political consensus that has won Ireland plaudits and set it apart from Greece.

Ireland's coalition government has a record majority and is expected to comfortably pass the 2012 budget but backbenchers, particularly from the centre-left Labour party, are uncomfortable about breaking election pledges.

Two Labour lawmakers have already been expelled from the parliamentary party in opposition to its economic policies and heaping more austerity on voters would raise the stakes.

Everybody knew that this budget was going to be bad but there is an expectation that the following year the cuts aren't going to be as severe and if in a year's time they are still saying we need more and more it might make a larger number in the Labour party wonder why they are doing this, said Eoin O'Malley, a politics lecturer at Dublin City University.

In a break with tradition, the 2012 budget will be unveiled over two days instead of one with spending measures to be presented by the Minister for Expenditure and Public Sector Reform Brendan Howlin on Monday and tax plans to be unveiled by Minister for Finance Michael Noonan on Tuesday.

Much of the detail, however, is already known after Reuters obtained details of the budget in documents given to German lawmakers.

While Kenny has pledged not to raise income taxes in 2012, his government will increase the top rate of sales tax by two percentage points to raise 670 million euros. He is also planning on introducing a property tax and raising motor taxes and carbon taxes. Capital gains taxes will also be targeted.

Social welfare rates will not be cut but eligibility for public handouts is likely to be tightened. Caps on recruitment will cut the public sector wage bill and the budgets for education and health are likely to be hit.

(Reporting by Carmel Crimmins, editing by Padraic Halpin)