Ireland is one of only three EU countries to reduce spending across a range of education, including student support, teachers and infrastructure, according to a report.
It says the crisis is severely affecting prospects for young people in particular, with youth unemployment now over 20% across the EU. Ireland has one of the highest levels at over 30%.
The report, issued by the European Commission, warns that the EU generally is due to miss its target of reducing the number of early school-leavers to 10% and pointing out that this group was the most likely to be out of work.
Ireland is among those close to achieving the 10% target, but budget cuts of more than 2% this year threaten this aim now.
The key to keeping young people in school longer is through teacher education, quality early childhood education and providing a blend of general secondary education with vocational education and training, the report says.
Improving educational achievements among students is another must to generate growth and jobs, and a target of having 85% of students attain basic skills by 2020 could generate huge long-term economic gains, the report says.
The report will be discussed by education ministers from EU countries when they meet in Brussels tomorrow.