* S&P says Dublin has underestimated scale of problem
* Rating outlook remains negative
* Government insists finances will be controlled
* Irish CDS rise after downgrade)
(Adds CDS reaction para 11)
By Carmel Crimmins and Padraic Halpin
DUBLIN, March 30 (Reuters) - Standard & Poor's downgraded Ireland's credit rating from the prized AAA ranking to AA+ on Monday and warned it could drop further in a vote of no-confidence in Dublin's efforts to get its public finances under control.
The rating agency said the Irish government had underestimated the scale of its fiscal problems and dismissed the possibility of a solution emerging at an emergency budget next week.
"The downgrade reflects our view that the deterioration of Ireland's public finances will likely require a number of years of sustained effort to repair, on a scale greater than factored into the government's current plans," S&P credit analyst David Beers said.
S&P said the rating could be lowered again if Ireland's fiscal position weakened substantially further.
"It just spells out the enormity of the task," said Rossa White, chief economist with Davy Stockbrokers. "It is unfortunate this has come in advance of it (the emergency budget)."
"It is important that there is a coherent plan."
Dublin has vowed to arrest the meltdown in its fiscal position in next week's emergency budget and reiterated that the new measures would also include a medium-term strategy for getting the budget deficit below an EU limit of 3.0 percent of Gross Domestic Product (GDP).
"The supplementary budget will set out the multi-annual strategy in this regard," the finance ministry said in a statement.
But S&P expressed doubt that Prime Minister Brian Cowen, whose approval ratings have nosedived as Ireland's economy contracts quickly, would be able to push through unpalatable spending cuts and tax hikes over the medium-term.
"We are concerned, however, that a credible multi-year fiscal consolidation strategy will not emerge until after the general elections, due by 2012," the agency said.
The downgrade, which will raise Ireland's borrowing costs, pushed up the cost of insuring Irish debt to 255 basis points from 221.5 basis points. [ID:nN30282829]
Moody's and Fitch still rate Ireland AAA but they have both warned that the outlook is negative.
CREDIBLE PLAN
The government is trying to keep this year's budget deficit at 9.5 percent of GDP, already the highest in the euro zone, but a steep drop in revenues as the economy contracts is making that goal increasingly difficult.
S&P said the measures would, at best, keep the deficit at around 10 percent of GDP this year.
Austin Hughes, chief economist with IIB Bank, said the downgrade heaped further pressure on the government.
"It focuses the mind on the necessity for a very, tough is one word, but really more important than that is a credible budget and a credible plan."
Ireland's economy, which fed off a booming property market, has undergone a stunning reversal of fortune as house prices undergo a protracted slump and the global recession bites.
The economy shrank 2.3 percent last year, the worst recession since records started in 1947, and the government has forecast a contraction of 6.5 percent this year. It expects a return to growth in 2011.
But S&P said over the medium term Ireland's economy would be constrained by high private sector debt levels and billions of euros in soured bank assets, a legacy of the property bubble.
S&P said Ireland's debt levels as a percentage of GDP could peak at over 70 percent of GDP by 2013, nearly doubling from around 41 percent in 2008 and reaching a level the agency said was inconsistent with other AAA rated countries.
(Reporting by Carmel Crimmins and Padraic Halpin; Editing by Victoria Main)