Estonian Prime Minister Juri Ratas resigned on January 13  over the chief state prosecutor's decision to investigate a Tallinn real estate scandal. President Kersti Kaljulaid immediately asked opposition Reform Party leader Kaja Kallas to try to form a government, putting an end to the country's turbulent and controversial populist left-right coalition after less than two years in power.

As reported by bne Intellinews, Estonia's chief state prosecutor announced on January 12 that he is investigating allegations of corruption against two of the ruling parties’ top officials involving government loans given to Tallinn's controversial Porto Franco real estate development project in return for party donations.

"This decision, as I said, was made as a result of consultations with the board of the Estonian Centre Party, fellow members of the party group, closest people to my post. And while there definitely would be different solutions, only one of them seemed to be right," said Ratas said, who denied being informed about the dubious financing of Porto Franco in any way.

"The suspicions lodged by the Office of the Prosecutor General do not yet mean that someone is definitely guilty, but they inevitably cast a serious shadow on all the parties involved. In such a situation, giving, through my resignation, a possibility to shed light on all circumstances and achieve clarity seems the only right thing to do. Under conditions of political and societal calm, I am convinced that the investigating authorities will do their work professionally and without bias and will establish the definitive truth also in this case," Ratas said.

Taavi Pern, the chief state prosecutor, said that all in all five persons have been declared as suspects in the case and an investigation will determine which suspicions are founded. The suspects include the Centre Party's secretary general Mihhail Korb, Kersti Kracht, an adviser to the Conservative People's Party (EKRE) minister of finance, and businessman Hillar Teder.

The prosecutor said that Teder and Korb are suspected of having agreed that Teder would donate up to €1 million to the Centre Party before the local government elections later this year, and, in return, a company with links to Teder was to receive the loan it had requested.

Commenting on the accusations, Ratas said: “Despite taking political responsibility, I can say with full peace of mind that as the prime minister, I have not made a single malevolent or knowingly wrong decision. Today, I have communicated with both the prosecutor general and the Internal Security Service, who both affirmed that they have no suspicions with regard to myself. As the head of government, I did not feel in the Porto Franco case either that some minister or political party had tried to influence the decisions made by the government in an unlawful direction.”

The PM emphasised that the decision to lend was made on the basis of a proposal made by Kredex, the state credit guarantee agency, and the terms and conditions of the loan were altogether comparable with those of the decision made with regard to port operator Tallink, for instance.

EKRE Finance Minister Martin Helme, who has suspended his adviser Kersti Kracht, said he had “zero tolerance for corruption” and that the party had received no money.

On January 13 Ratas notified President Kersti Kaljulaid of his resignation. Kaljulaid swiftly made a proposal to Reform Party leader Kallas to form the next government of Estonia.

According to the head of state, the political force that received the biggest number of votes in elections must get the possibility to offer its values and demonstrate its ability to form a functioning government that will take life in Estonia forward.

According to the constitution, the president must, within 14 days after the resignation of the government, designate a candidate for prime minister whom the president will task with forming a new government.

President Kaljulaid has been in constant conflict with the government, and particularly the EKRE party ministers. She has accused the far right party's leaders of damaging the country's international image, particularly through their comments backing US President Donald Trump's allegations about the illegitimacy of the US presidential elections.

She also expressed hope on January 13 that the coalition's controversial marriage referendum is off the table in the present government crisis. Ratas said in parliament's question time on January 13, speaking of the planned referendum on the definition of marriage, that he doesn't consider handling such a big initiative in the current situation as necessary.

As reported by bne Intellinews, the investigation showed that Teder, whose son Rauno Teder leads the Porto Franco project, a real estate development in Tallinn’s city centre next to the Baltic sea, donated €30,000 to the Centre Party in July last year, and made two more donations in the sums of €30,000 and €60,000 in September and in the final quarter of 2020, respectively. As reported by bne Intellinews, the Estonian government approved on September 3 a loan of €39mn for Porto Franco.

The developer was compelled to apply for the loan in the wake of the coronavirus (COVID-19) pandemic. The loan has stirred controversy, as it utilises KredEx and funds intended for businesses demonstrably hit by the coronavirus pandemic.

The scandal added to the Centre Party's problems in its first try at leading a national government. It threatens to refocus public attention on the left populist party's chequered history under former leader and long-time Tallinn mayor Edgar Savisaar and further damage its already diminished popularity — and could also land it with huge fines.

In autumn 2019, the Centre Party was ordered by the Harju County Court to pay the state €25,000 in a corruption case concerning Savisaar. The court ruled that the party, which pleaded guilty to accepting forbidden donations, would also have a fine of €250,000 suspended, so long as it did not commit another crime over a probationary period of 18 months. It was only health reasons that stopped Savisaar himself being put on trial on charges of accepting bribes, money laundering, embezzlement on a large scale, and accepting prohibited donations.

In autumn 2016, Savisaar, who had long been treated as a pariah by other Estonian parties, was ousted as Centre Party patriarch and replaced by Ratas, representing a younger, more moderate generation. Ratas has tried to turn a page on the Savissar era and extend the Centre party's appeal beyond its ethnic Russian base, but the party's opinion poll ratings have been hit by the scandals and his decision to form a governing coalition in March 2019 with the far-right EKRE party and the national conservative Isamaa party.  Many of its voters appear to have shifted to EKRE.