Estonia Avoids Populist Tremor With Pro-Business Party's Victory

(Bloomberg) -- Estonia’s Reform Party moved toward forming a government after upsetting Prime Minister Juri Ratas’s ruling coalition, vowing to exclude populists who’d threatened to shake up the political landscape in Sunday’s general elections.

With gains by euroskeptic parties from Hungary to Italy raising worry of a nationalist tilt across the world’s largest trading bloc, voters in the Baltic country largely focused on domestic issues and gave mainstream forces a clear path to forming a government. It also all but guaranteed a continuation of political stability, in which one of the two top parties has led every cabinet save one since 2002.

Estonia Avoids Populist Tremor With Pro-Business Party's Victory

Reform Chairwoman Kaja Kallas is now on track to become the first woman prime minister in the 1.3-million country, where another, Kersti Kaljulaid, is president. Her business friendly party had 28.8 percent of the votes, according to results from the Estonian Electoral Commission with all precincts counted early Monday morning. Ratas’s Center party was in second with 23.1 percent, and the anti-immigrant EKRE party had 17.8 percent.

Reform plans to meet "in the coming days" with the conservative Isamaa party, the Social Democrats and Center, all members of the outgoing coalition, “to establish potential commonalities,” spokesman Kajar Kase said in an emailed statement Monday. “The Reform Party has two options to form a ruling coalition -- either with Isamaa and the Social Democratic party or with the Center Party.”

Euroskeptic Threat

During the campaign, the anti-establishment EKRE sought to tap into voter fear over immigration and stir anger over a $230-billion money-laundering scandal involving Danske Bank A/S, one of Europe’s biggest dirty-cash cases. It also threatened to call for a referendum on EU membership, saying almost three decades of unquestioning engagement with the bloc hadn’t translated into better living standards for many Estonians.

Kallas said cooperation with Isamaa and the Social Democrats, which ruled with Reform in the previous government, “worked well earlier,” according to an interview with the Postimees newspaper. "A lot of our principles overlap,” she said.

Taxes, Schools

All of the mainstream parties have pledged to keep Estonia on its path of integration with its fellow EU and NATO members. Where they differ is largely on taxes and social policies.

A champion of low taxes and fiscal austerity, Reform has pledged to effectively eliminate a key part of Center’s anti-inequality platform by extending an income-tax break for low earners to all workers. It has also promised to speed up the phasing out of exclusively Russian-speaking schools, a flashpoint issue in a former Soviet nation where Russian is the native tongue of about a quarter of the population.

Kallas said Reform, which ruled from 2005 until Isamaa and the Social Democrats abandoned it in favor of the Center party in 2016, could easily put its differences with those parties aside. The presence of EKRE on the political stage will also probably reduce room for horse trading in coalition talks.

"Everybody wants to get a position in the government, so if they have an opportunity, they’ll grab it," said Piret Kuusik, a junior research fellow at the Estonian Foreign Policy Institute. "It is clear that Estonia will continue its open and progressive course that it has followed for the past 30 years."

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