Hungary could lose EUR 214 million in Norway Grants development funds

May 11, 2017

Hungarian police during a raid of a Norway EEA Grants beneficiary

The Hungarian government would like to reach a deal with the donors of the Norway European Economic Area Grants — but only to a point. According to pro-government Magyar Idők, Hungary stands to receive EUR 214.6 million from the Norway EEA Grants for the 2014-2021 funding cycle if Hungary can reach an agreement with the donor countries on how the funds will be distributed. But such an agreement looks increasingly unlikely as the government insists on greater control over how the funds are used.

What are the Norway EEA Grants?

Norway, Liechtenstein, and Iceland are not EU member states but have access to the European Economic Area by giving money to the 16 poorest countries in the EU for “reducing economic and social disparities.”

The amount depends on population size and GDP per capita, making Poland the largest beneficiary, then Romania, Hungary and the Czech Republic.

Each beneficiary country must agree with the donor countries on a set of programs the funds will benefit.

And that’s where the problem is with Hungary

A scandal broke out in 2014 when the Hungarian government overhauled the mechanism through which a large portion of the Norway EEA Grants were distributed in Hungary. The government’s overhaul was a clear violation of the Memorandums of Understanding signed by it and the donor countries.

These countries urged the government not to implement the changes until the Memorandums of Understanding were renegotiated to reflect the wishes of all parties. The government refused, so the donor countries threatened to suspend funding affected by the overhaul. And that’s when things really got out of control.

The Norway EEA Grants flowing into Hungary can be broken down into two categories: funding for economic development and funding for civil society. The government gets to distribute the larger sum for economic development as it chooses, while the smaller sum for civil society (around 10 percent of the total funding) is distributed by a regranting organization selected by the donor countries.

In 2014 the countries threatened to suspend the larger fund for economic development distributed by the government. The government reacted by saying that the donor countries should also suspend the civil society fund. But because the countries found nothing wrong with how the civil society fund was operating, they informed the government that the fund would continue to operate.

So the government launched an open assault against the NGOs receiving the civil society funds, accusing them of intervening in Hungary’s domestic political affairs, in addition to budgetary fraud and a range of other baseless accusations.

The government’s witch-hunt was unprecedented. Police raids were launched against NGOs, the organizations were threatened with revocation of their tax ID numbers, and Prime Minister Viktor Orbán personally ordered the State Audit Office to launch investigations into the NGOs — something legal experts say was unlawful because the civil society fund does not fall under the audit office’s jurisdiction.

About a year and a half later, all of the government’s allegations that crimes had been committed by the NGOs turned out to be false. Nothing stuck in court. But this entire escapade left a very sour taste in the mouths of the donor countries — especially Norway. Bilateral relations between Hungary and Norway sank to a new low.

What the entire debacle demonstrated was the extent to which the Hungarian government would act to make sure it got what it wanted — even if it meant holding its own domestic civil organizations hostage. The scandal was also the first time the government plainly revealed how it perceived civil society —as expendable.

As Hungary wades deeper into the swamp of an “illiberal” autocracy, the importance of independent civil society only increases. Ensuring the independence of the civil society funds is of the utmost importance to the donor countries, but the government itself wants to decide which regranting organization should disburse the civil society funds in Hungary.

The government argues that funds provided by Norway EEA Grants are Hungary’s own public funds with which it can do what it chooses. But the donor countries aren’t buying it. Both sides have been quite open about this issue being a serious point of contention.

While it is too early to rule out that the parties can reach an agreement, there is a risk that Hungary can stand to lose all funding from the Norway EEA Grants for 2014-2021 (a hefty EUR 214.6 million) if the two sides cannot find common ground.