The Governor of the Central Bank, John Hurley, has said that the Irish economy could contract by up to 4% next year and that unemployment will rise significantly.
He said that the decision by the Government to recapitalise the banks was difficult, but necessary to stabilise the banking system and to give confidence.
Mr Hurley said it was the worse financial crisis for more than a century and it was not known how long it would last. He called on the social partners to play their part in reducing Ireland's cost base.
Asked about euro zone interest rates, Mr Hurley said the ECB's Governing Council would be closely monitoring the downturn in the euro zone economy and lower inflation in the coming months.
Listen to John Hurley's interview with George Lee
Meanwhile, Taoiseach Brian Cowen has warned that people's standard of living will drop significantly next year. Mr Cowen said that the country would have to adapt to 'the new situation', but that things would still be better than they were 10 or 15 years ago.
He also said it was important to keep as many people at work as possible, in both the public and private sector.
On the banks, Mr Cowen said he had faith in the boards of the banks to 'do whatever is necessary'. He also said the Government would have a far more 'hands-on' approach to the banks.
The Taoiseach said he wanted to sit down with all stakeholders in the economy and 'devise a financial stability programme for the next five years'.
He said there had been a 'fundamental fracture' of the worldwide financial system, but if we did the right things now we could get back to where we were 'reasonably quickly'. Mr Cowen said the social partnership model was the right one for this task.
