Estonia: Policy continuity expected with elections coming up in early March
February 20, 2019
Estonia is set to hold a parliamentary election on 3 March, in what is expected to be a tightly contested race between the two leading political parties: the opposition Estonian Reform Party and the governing Estonian Centre Party. However, as neither party is likely to garner an absolute majority, the most probable scenario is a hung parliament, with the winning party needing to form a coalition government. Both leading parties are fundamentally politically centrist which, on top of consensus building as the result of a likely coalition government, should lead to a broad continuity of current economic and foreign policy going forward.
According to most recent polls, the Centre Party, which commands a strong support from the country’s sizeable Russian minority, is neck-and-neck with the Estonian Reform Party with less than two weeks left before the vote. The Center Party’s platform has centered on improving the public health sector, raising pensions and public-sector wages, and implementing more progressive income taxation—thus effectivity maintaining their current socio-economic policy course. The party has been the leading political power in Estonia since 2016, following a dispute of then-coalition partners, the Reform Party and the Social Democrats, with the latter jumping ship to form a new center-left coalition government with the Centre Party.
The Estonian Reform Party, which found itself in opposition for the first time since 1991 after the coalition split in 2016, remains tied with the Center Party for a frontrunner position, as suggested by the polls. The Reform Party strongholds remain predominantly in the cities and urban areas, given its strong market liberalist stance and pledge to cut income taxes. Meanwhile, nationalist and Eurosceptic Conservative People’s Party of Estonia (EKRE) trails in a distant third place, despite significantly gaining in popularity over the last two years. Notably, the rise of the EKRE has greatly increased the likelihood of a coalition between the Center Party and the Reform party, as both political forces appear unlikely to go into talks with the radical EKRE. That said, coalition talks might prove to be lengthy and, if the two leading forces are unwilling to work together, the wining party could be forced to turn to smaller political parties on either side of the spectrum to secure a majority.
The new government will inherent a strong and rapidly growing economy, buffered by a healthy state of public finances. Nevertheless, challenges ahead remain. In the short-term, deteriorating external sector conditions, due to the fall in price competitiveness and feebler global demand, will take a bite out of growth. In the medium-term, rising structural unemployment, due to expected job losses in the low-productivity manufacturing industry, hangs over the economy.
Author: Almanas Stanapedis, Economist