Taoiseach Brian Cowen is leading talks in Government Buildings with employers and trade union leaders over the next two days on the need for a major re-negotiation of the social partnership deal.
Central to the talks will be cuts in the public pay bill.
Mr Cowen briefed the Irish Business and Employers Confederation (Ibec) today and will talk to the Irish Congress of Trades Unions (Ictu) tomorrow.
The Taoiseach is not expected to put the Government's list of demands until next week's talks, unless employers and union leaders force the issue over the next two days.
Ibec said today it was committed to working with the Government and the other social partners to agree a strategy for economic renewal. The employers body called on the public sector to show similar flexibility to the private sector with regards to pay freezes and pay reductions to help sustain jobs.
"We are now in dramatically changed economic circumstances since the Transitional National Agreement was negotiated last September. The agreement recognises that some private sector employers will be unable to pay the terms or will need to agree cost offsets with their staff in order to do so. In implementing the Agreement, there is already evidence that management and workers are capable of negotiating sensible arrangements at enterprise level to reflect these new economic realities," said IBEC Director General Turlough O'Sullivan.
"In the event that the provisions of the agreement prove to be inadequate to take account of the difficulties now being experienced by employers, or where trade unions fail to show the flexibility and cooperation necessary, then IBEC will have no hesitation in revisiting the terms of the agreement with Ictu and the Government."
Yesterday, during a six-hour Cabinet meeting, Minister for Finance Brian Lenihan warned that the exchequer will have to borrow €20 billion this year alone unless major action is taken quickly.
He will begin work on a detailed list of the cutbacks that will be needed to make the savings required to begin a five-year effort to get the State's finances back in order, though the sums required for this alone are measured in billions.