* Pentagon facing 'perfect storm' of fiscal problems- Panetta
* Department will pay a 'hell of a price' if cuts go into effect
By David Alexander
VICENZA, Italy, Jan 17 (Reuters) - U.S. Defense Secretary Leon Panetta said on Thursday that Congress should "suck it up" and show the leadership needed to fix the fiscal crisis that has thrown Pentagon budgeting into confusion and threatened national security.
Responding to questions from Army soldiers worried about looming spending cuts, Panetta said the Defense Department faced a "perfect storm" in the coming months. He cited the need for the U.S. debt ceiling to be raised, the Pentagon's current funding approval due to expire, and $500 billion in spending cuts about to go into effect.
Panetta, on a week-long trip to Europe that is likely to be his last as defense secretary, had few words of comfort to offer the troops if the Pentagon has to implement another $500 billion in spending cuts over 10 years beginning on March 1.
"If I face another half a trillion in cuts, you know, all bets are off," Panetta told about 150 members of the 173rd Airborne Brigade Combat Team in Vicenza, Italy. "I don't know what to tell you at that point. We're all going to pay a hell of a price. I hope it doesn't come to that."
The Pentagon has begun implementing $487 billion in cuts to projected spending over 10 years that were ordered in the 2011 Budget Control Act, which was aimed at reducing the United States' trillion dollar budget deficits.
The act also directed the government to implement another $1 trillion in across-the-board cuts, including $500 billion from defense, unless Congress agreed on a compromise package of alternatives that would reduce spending by an equivalent amount.
The cuts, under a mechanism known as sequester, were due to go into effect on Jan. 2. But Congress passed a law on New Year's Day that delayed the spending reductions for two months to give them more time to hammer out a deal.
At the same time, Congress has not appropriated funds for the Defense Department for the 2013 fiscal year that began on Oct. 1. Instead, it passed a deal to keep the department operating through most of March, but at reduced funding levels.
And the government has reached the limit of its borrowing capacity and needs Congress to raise it sometime in March to avoid a default.
The timing of the three financial measures has caused some officials to voice concern that the Defense Department cuts may be allowed to go into effect because Congress may be more concerned about the debt ceiling and 2013 appropriations.
"The greatest threat we face right now is continuing uncertainty in Washington as to just exactly what will happen on the budget," Panetta told the troops.
"If suddenly they cut us and then if this damn sequester goes into effect, we're facing huge cuts," he added. "Largely, that would have to come out of readiness and maintenance."
Panetta said if the cuts bite, the Pentagon would have to send out notices to the department's nearly 800,000 civilian employees that they may have to take a month of unpaid leave before Sept. 30 to achieve needed spending reductions.
"It's going to affect us," he said. While troops preparing to deploy would receive training, for "everybody else, training is going to be cut, readiness is going to be cut ... ships that should go into maintenance won't go into maintenance."
Panetta said the Pentagon needed greater budget stability and the flexibility to make spending reductions strategically, rather than across-the-board as under sequestration.
"This is not an unsolvable problem," he said. "People have just got to suck it up and take on some of the risk and ... challenges that are required by people in leadership."
Panetta noted that members of the 173rd put their lives on the line in Iraq and Afghanistan.
"All we're asking of our elected leaders is to take a small part of the risk that maybe they'll piss off some constituents. But the fact is that they'll be doing what is right for the country." (Reporting By David Alexander; Editing by Mark Heinrich)