This is Silvio Berlusconis second January as prime minister. A year ago it was interesting that he had survived longer than his first attempt at government in 1994. This new year the honeymoon with the electors is long over and he is being judged by real results, measured against his campaign promises.

Italy and the rest of Europe are teetering on the edge of recession; the forecasts for economic growth in Italy have been reduced steadily over the year, and although the prime minister has called for a policy of optimism the economic reality is far from reassuring. The prospect of a war against Iraq is a further damper as a sharp rise in oil prices would cause havoc on world markets. Locally, Italians have woken up to real price rises over the last year. Everyone has been mumbling for months but now we have numerical confirmation: while the official statistics institute, ISTAT, has played down the increases in the cost of living, independent researchers reckon inflation in consumer goods has risen sharply.

All this means that the underlying issues over the coming year will be economic. The battle over reform of the labour market will inevitably start up again. Flexibility has been the buzzword meaning less job security but after months of tussles with the unions and a much trumpeted agreement for Italy little has changed, and reduced growth is making employers even more impatient while the unions have rediscovered their unity.

No doubt Berlusconi would rather not have to face the question of the labour markets but he will have to. The pensions issue is not so acute but he has promised that he will deal with it this year. The fact that there is not enough money in pension funds is another very sore problem as no one likes the idea of having less money when they retire. If he does actually tackle the issue, we can be sure that there will be strong reactions, and from his own supporters too.

There is another fundamental problem which will occupy a lot of time but is less immediately felt than money matters: the conflict between the executive and the judiciary. Last year at the ceremony of the judicial new year, then-retiring Milan prosecutor Francesco Saverio Borelli called on his colleagues to resist, resist, resist and defend the independence of the judiciary. Many of his colleagues wore black gowns instead of the ceremonial red ones as a sign of protest. There was a magistrates strike in June and two investigations into government interference. This year the National Association of Magistrates invited its members to carry copies of the constitution during the ceremony as a symbolic defence of the magistrature. Berlusconi has promised that he will reform the sector, above all by reducing the independence of prosecutors. In the long term, this is the most serious topic.

Another issue which will have lasting consequences is devolution. In 2001, parliament passed a constitutional amendment giving more powers to the regional governments in health, education and spending. The reform has not been implemented yet but in the meantime Lega Nord leader Umberto Bossi is pushing for his own amendment to be passed. This would give even greater independence in education and would institute a regional police force. Despite the governments majority, this will not be an easy measure to push through as the centrist Cristiani Democratici Uniti and right-wing Alleanza Nazionale are less than enthusiastic about the measures.

Another divisive issue is whether to implement an amnesty to relieve the pressure on overcrowded gaols. The pope called for one when he made his historic first speech in parliament last November, and most of the left and centre are in favour while the right is against.

All these questions have a direct bearing on the lives of millions, but the one that has dominated airwaves and newsprint recently is what sort of chief executive Italy should have. A president along the lines of the US model? Or a French-type leader elected by the people who has to deal with a prime minister who may be of a different party? A British-style prime minister, a party leader who, once he or she has won, has almost unlimited power? Or a German chancellor, elected by parliament but in practice accepted by a popular mandate?

Once again, Italian commentators and politicians are full of words and concepts. The bottom line is more power whatever the title, and in a country where the present head of government is already too powerful in other fields, alarm bells should be ringing. Instead, the centre-left opposition has shown little resistance, hoping that next time it will be its turn to enjoy the new, increased powers.

So it is no surprise that last years conflict of interest bill to resolve the question of the prime ministers media holdings is low on the priority list, though it should reappear next month and no doubt will run and run. So too will the saga of who runs the state-owned television company RAI, a soap opera with far more drama than the broadcasters programmes.

In all of this, the opposition is as divided and fractious as ever. In both form and content, Italian politics is still heavily centred around Berlusconi.