New Coalition: Political Risks To Remain

We expect the centre-right People's Union to replace the centre-left Social Democrats (SD) as the junior partner in Estonia's coalition government. The move will restore a parliamentary majority to Prime Minister Andrus Ansip's cabinet after the SD were ejected following a disagreement over planned budget cuts. We caution that elevated risks to government stability will remain, even after the reconstitution of the government. Further expected budget cuts will continue to add to the potential for policy schisms, while the deepening recession is likely to contribute to a sharp fall in the government's popularity.

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