"The potential of the side has been cut by 50 percent, whether it's because of injuries that we've had in the last six or seven months or because so many players have lost their place," Prandelli told the Corriere della sera newspaper.
For example, Villa Real's Giuseppe Rossi is out for up to 10 months after rupturing a knee ligament, while fellow striker Antonio Cassano of AC Milan only started playing again in April after six months off with a heart problem.
Alessandro Matri and Giampaolo Pazzini meanwhile have lost their places at Juventus and Inter Milan while Mario Balotelli has not played since his latest suspension at Manchester City.
Prandelli, however, said he was not concerned about the situation and that he was not being forced to improvise.
"The work that we've done is there and it's valuable," he was quoted as saying.
Prandelli instead said that hunger to play would be Italy's strength in Poland and Ukraine.
On Balotelli, who has often fallen foul of the coach's famous "ethical code", Prandelli said he would include him in the squad due to be announced next week.
"We have to give another chance to talented players," he told the newspaper. "And talent he has. But he shouldn't put a foot wrong and I'm certain he won't."
Italy's Group C opponents are Spain, Croatia and Giovanni Trapattoni's Republic of Ireland.