The trouble is, the government relies on the votes of the far-left party Rifondazione Comunista to make up a majority in the Chamber of Deputies, and Rifondazione - a notoriously unreliable negotiating partner at the best of times - is refusing to countenance any cuts in pensions. No wonder the commentators are predicting a "hot autumn".
This being Italy, however, the situation may not be as intractable as it looks - and certainly not as simple.
In the past few days Mr Prodi has received an unexpected offer of help from the opposition leader, Silvio Berlusconi. We will help you push through welfare reform, Mr Berlusconi promised, because there's no point sacrificing the future of the country for the petty squabbling of party politics.
A nice offer, was the reaction in government ranks, but can it be trusted? And what does Mr Berlusconi hope to gain in return?
The scene has been set for three months of high political intrigue and heart-stopping games-playing, in which no scenario seems too ridiculous and no political gambit too ambitious.
The general assumption is that Mr Berlusconi wants an amnesty on corruption cases in the courts - thus getting himself and a number of key colleagues out of some potentially very damaging trouble connected to his Fininvest business empire.
That prospect does not please Italy's magistrates, who last week requested that Mr Berlusconi's lawyer and political henchman, Cesare Previti, have his parliamentary immunity lifted so that he can be slung in jail on charges of corruption and perverting the course of justice on behalf of his masters.
Nor does it please Mr Berlusconi's political partners, who do not see why they should have to bail out the government on a key plank of economic policy just to suit Mr Berlusconi's private business interests.
Throw into the equation the continuing attempts by parliament to reform Italy's unmanageable system of government - with all the petty interests that generates - and you have the ingredients for a very complex scenario indeed.
What will be the outcome? These are the most plausible options:
1. Mr Berlusconi gets his amnesty, or whatever it is he is looking for, Mr Prodi gets his welfare reform and the government lives to fight another day, albeit heavily weakened.
2. Mr Berlusconi supports the welfare reform but the Prodi government, forced to admit that it has lost its majority, resigns - leading in all probability to general elections.
3. Mr Prodi drops Rifondazione and invites some part of Mr Berlusconi's coalition into the government.
Number three has been ruled out so far by most government leaders but may yet become a last resort. Number one sounds a bit too cushy to be realistic. Number two is perhaps the one to bet on: Italy will get its welfare reform and qualify for the single currency, in whatever form it takes, but at the price of yet another government crisis and, very possibly, the third general election in four years.
The country may have exceeded all expectations in getting its public finances into shape for Europe, but politically it is still a long way off anything that could be described as maturity.