As the Giro dItalia cycle race gets into full swing and the national football season draws to a close, it seems an appropriate moment for Silvio Berlusconi to hand over the reins of government to Romano Prodi. Berlusconi came onto the playing field of Italian politics in 1994 calling his party Forza Italia after a football chant. He frequently uses football metaphors in his political speeches and his style is confrontational and aggressive as in the stadium. Now, just as Berlusconis Milan football team comes in second in the Italian league and fails to make it in the European competitions, so its owner has to take second place in the political arena after five years of dominating it. And as if to seal Berlusconis fall from grace, the final verdict on his lawyer and close associate Cesare Previti was handed down at the beginning of May. It confirmed that Previti is guilty of bribing a high court judge but reduced his sentence from seven to six years in jail, though on request, judges have allowed him to return home from prison and serve his sentence there.

Prodi on the other hand is into cycling, a distance sport, not known for loud outbursts on or off the road. His image is one of the slow and solid climber who makes it in the end. Rhetoric and careful packaging are not his strong points and he is singularly bumbling in public. The contrast in government will be no less striking.

Although there will be a dramatic change in the style of political leadership the problems which face the country have not changed with the elections.

The economy was the main issue during the campaign and is by far the most serious hurdle for Prodi. Unemployment was perceived as the single most important question facing voters, but the government will have to deal with Italys debt and budget deficit, both beyond European Union (EU) limits and growing. Italys manufacturers have become progressively less competitive now that devaluing the lira is no longer an option and economists agree that major restructuring of the whole sector is necessary. Italys strength in the past was in small- and medium-sized family-owned businesses, but that has developed into a weakness as they find it more and more difficult to compete internationally with bigger firms, especially with products which Indian and Chinese manufacturers can sell much more cheaply. Italy still has so many restrictive practices that protect unproductive businesses. But to privatise and liberalise would be very painful.

On the other hand, a more flexible labour market could be even more difficult to achieve. Prodis own left wants to revise the so-called Biagi law passed by the Berlusconi government, which provides a series of more flexible employment contracts and gives employers greater latitude in hiring and firing than before. The protests in France against a youth employment bill without job security effectively killed that proposal and the last thing the new Italian government would want would be a collision with the unions and with the young.

However, Prodi might still be able to make serious changes if he acts quickly and decisively. He is under pressure from abroad - the EU, the International Monetary Fund (IMF) and the ratings agencies - which he can use as a stick to keep his own allies in line and justify the bitter medicine to those who have to swallow it. He has an able and tough ally in the Bank of Italys new governor Mario Draghi and, most likely, an equally competent minister of the economy in Tommaso Padoa-Schioppa. At least for the first few months, he can genuinely point to the previous government as being responsible for the countrys economic problems and his tiny majority can paradoxically be seen as a strength: a serious defeat in parliament would mean a return to the polls, which none of his allies are seriously prepared to face.

That is Prodis best-case scenario; the downside is that his majority in the chamber of deputies is small and in the senate tiny. His coalition is fractious, going from the centrist UDEUR to the Rifondazione Comunista by way of the militantly secular Rosa nel Pugno and the mainstream Democratici di Sinistra, whose candidate Giorgio Napolitano was elected president of the republic to replace Carlo Azeglio Ciampi on the fourth ballot on 10 May.

Now that parliament has elected Italy's new president, Prodi must put together a government, which means sharing out the posts in a way that will keep his coalition allies satisfied and also have a reasonable chance of getting the job done. Then at the end of the month there are the local elections (see pages 11, 16 and 17), which could put a strain on the coalition if centre-left candidates do not put in a good showing. This will be followed by a referendum on 25-26 June on the centre-rights constitutional amendment which gives more power to the regions. However, there is a fair chance that both votes could strengthen the government if the parties in the coalition poll more in the local elections than they did in the April parliamentary vote and if the constitutional amendment is rejected.

Much more difficult will be the refinancing of Italys mission in Iraq, due to be debated in parliament next month. It will pass, as the centre-right parties will hardly stop an initiative which they began, but it would be very embarrassing for the government, which can expect defections within its own coalition ranks, especially on the far left, if it has to depend on the support or abstention of the centre-right opposition.

A final hurdle will be the budget, which begins its long journey in September. If Prodi can pilot it and perhaps even a mini-budget before then successfully through parliament, his government stands a good chance of lasting. By Christmas, the cracks in the centre-rights Casa delle Libert will begin to show more openly and the leadership challenges to Berlusconi, which were already evident before the parliamentary elections, will probably be out in the open.

However if Prodi cannot show clear leadership Berlusconi could make it through to the next season.