Ireland's government imposed yet more spending cuts on Monday with possibly worse still to come as the European debt crisis throws up a damaging cocktail of slowing growth and zealous austerity across the currency bloc.

Ireland is only half-way through an eight year cycle of swingeing spending cuts and tax hikes as it seeks to get its budget deficit, currently the biggest in the industrialised world, under control as part of an EU-IMF bailout.

With 2.2 billion euros (1.89 billion pounds) in spending cuts earmarked for 2012, the government aimed its axe at social welfare payments, the health sector and education, with fuel and rent allowances, disability payments and student grants all cut.

Dublin will outline its tax plans on Tuesday. Much of the detail, however, is already known after Reuters obtained details of the budget, including a two percentage point increase in the top rate of sales tax, in documents given to German lawmakers last month.

Held up as a role model for other indebted nations for its success in pushing through nearly 21 billion euros in austerity measures -- equivalent to around 13 percent of gross domestic product (GDP) -- without any social unrest, Dublin has nevertheless been forced to drive the knife even deeper.

No government, whatever its numbers, wants to be the bearer of bad news. But our options are extremely limited, Minister for Public Expenditure and Reform Brendan Howlin told a packed lower chamber.

There is no hiding from the fact that, as a government, we must take very difficult decisions.

Prime Minister Enda Kenny's coalition government, swept into power in March with a record majority, is targeting some 12.4 billion euros in adjustments between now and 2015 and is relying on the 2012 plan to be the worst of its term of office.

But if the euro zone tips into recession as the financial crisis drags on, Kenny may be forced to push through even harsher budgets in 2013 and beyond, stretching the patience of the public and government backbenchers.

They are going for the usual suspects, pushing off difficult decisions to a certain degree and hoping the economy picks up and they won't have to do as much, said Alan McQuaid, chief economist at Bloxham Stockbrokers.

Most people are revising growth forecasts downwards so it will be difficult for the government to hit its deficit targets. But if the euro zone crisis is sorted out we may get there. For the moment it's just a matter of wait and see.

French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Paris on Monday to align their positions on centralising control of euro zone budgets, with Italy and Greece joining Ireland this week in tightening the fiscal screws.


During Ireland's decade-long property bubble, public spending more than tripled, much of it to fund pay rises and generous top-ups to social welfare payments, which are now relied upon by nearly half a million people compared to around 150,000 when Dublin property prices rivalled those of Manhattan and Moscow.

Howlin, a member of junior coalition party Labour, plans to cut 6,000 jobs from the public sector next year, helping to save 400 million euros, but public sector pay, which has been reduced by an average of 15 percent since 2009, remains off-limits and will remain frozen at present levels.

A deal with trade unions not to reduce public sector pay again or force through redundancies has meant spending cuts have already focused on services and benefits.

The results of this approach have included a jump in hospital waiting lists, overcrowding in A&E departments and homeless hostels turning people away.

Ireland recently raised its adjustment target for 2012 to 3.8 billion euros from 3.6 billion euros due to weaker growth, and Kenny made a televised address to the nation late on Sunday to prepare people for bad news. It was the first such address by an Irish leader in 25 years.

But revelations in the local media on Monday that Kenny had sanctioned a 34,000 euros increase in the salary of one of his advisers ensured hoots of derision in the lower chamber when Howlin said the government had cut the pay of government ministers and advisers.

You cut the fuel allowance for people over this cold winter to pay for your friends in high places, said Sean Fleming, the opposition Fianna Fail party's spokesman on public spending.

Ireland is expected to miss its medium-term fiscal goals due to the threat of a recession in Europe, a Reuters poll last week showed.

(Writing by Carmel Crimmins; editing by Philippa Fletcher and Stephen Nisbet)