Three big challenges for the Berlusconi cabinet

The new Italian cabinet, Silvio Berlusconi's fourth government, is both strong and weak. It is strong because the government has solid majorities in the House and Senate, and the supporting coalition is less fragmented than in previous Berlusconi cabinets. It is weak because the government is starting with relatively low popular support and no political honeymoon. Italians voted more against Romano Prodi's government than in favour of Mr Berlusconi. They are rightly tired of a political class that has raised its own wages - up 10 per cent per year in the past 50 years compared with 2.0-3.0 per cent for average Italians - rather than address structural impediments to growth in Italy. Fiscal federalism, the electoral law and the fight against tax evasion will be the three most important challenges in the first year.

The first challenge is fiscal federalism. The real winners in the election were two local movements in the Berlusconi coalition: the Northern League and the Movement for Autonomy (of Sicily). The House and Senate majorities depend on them. The Northern League calls for fiscal federalism to prevent public money going south, with proposals that 90 per cent of tax revenues stay in the areas that generate them. The Movement for Autonomy, by contrast, wants revenues from oil refined on the island - no matter where it is sold! - to go to Sicily. Mr Berlusconi's party (Popolo delle Libert