Estonia’s ruling Reform party and the opposition Isamaa and Social Democrats (SDE) have managed to hash out an agreement on a new ruling coalition to lead the tiniest Baltic country. The three parties will have a narrow majority of 56 seats in the 101-seat Riigikogu, the Estonian parliament.

Each party will receive five ministerial portfolios in the new government.

The senior coalition partner, Reform, which commands 34 seats in the 101-seat Riigikogu, will be charged with the portfolios of prime minister, minister of finance, minister of defence, minister of social protection and minister of rural affairs.

Isamaa, with 12 seats, will be given the portfolios of minister of foreign affairs, minister of education and research, minister of justice, minister of entrepreneurship and information technology (IT) and minister of public affairs.

SDE, with 9 seats, will receive the portfolios of minister of the interior, minister of health and labour, minister of economic affairs, minister of the environment as well as minister of culture.

The three parties also agreed that the position of first vice-president of the Riigikogu, currently held by Reform member Hanno Pevkur, would go to Isamaa, as would the chairs of the Riigikogu's European Union Affairs Committee, Finance Committee, Environment Committe, and Rural Affairs Committee.

Agreement on family support and the reform of the electricity market were two areas that, until late on July 8, prevented the parties from striking a power-sharing deal.

Reform leader and Prime Minister Kaja Kallas likened the event to ERR, the national broadcaster, to the white smoke that issues forth from the Sistine Chapel when a new pope has been elected, saying on her social media account that: "Habemus papam. We have reached a new coalition agreement. There are some remaining details and positions."

Reform had been in office alone as a minority government since June 3, an unusual situation for Estonia.

Upon the agreement, child allowances will rise to €80 per month per child, and the allowance for families with three to six children to €600, while the income tax-free threshold will also rise, to €654.

Family benefits will be phased out in increments as a child turns 24 – in other words in a family with three children, when the eldest child turns 24 the support will be cut by a third, then another third when the second child reaches that age etc.

To counter soaring energy prices, a reform of Estonia’s electricity market is under preparation. This will provide for the option to purchase electricity outside the market exchange, as a universal service, during the heating period (October to March inclusive),  which will be additionally compensated to a maximum of €50 per MWh.

According to the agreement, a full transition to Estonian-language education in pre-school education and in general education in the first to fourth grades will begin in 2024.

Additionally, the financing of higher education will be increased as soon as this year, by an additional €10mn.

Kallas announced at noon on July 11 that the party's final picks for its ministers have been received by the party board, and that their names will be published together with those of the two junior coalition parties.

As reported by bne IntelliNews, the Reform dumped the Centre party as its junior coalition partner over disagreements over the family benefits package bill.