PART 1: What are the EEA and Norway Grants and why was funding suspended to Hungary?
What are EEA and Norway Grants?
The EEA grants scheme is jointly financed by Iceland, Liechtenstein and Norway. None of the three donor countries are members of the European Union but they are all part of the European Economic Area. The three countries provide financial contributions to the EEA Grants scheme to help reduce economic and social disparities in the European Economic Area and to strengthen bilateral relations with the newest European Union and European Economic Area Member States in Central and Southern Europe.
In essence, the three countries – as European Economic Area Member States and signatories to the European Free Trade Agreement – contribute to the EEA fund to help bolster social and economic progress in the least developed countries of the EU and European Economic Area.
The EEA Grants is distributing a total of €993.5 million (USD 1.35 billion) for this current funding cycle – 95.8 percent by Norway, 3.0 percent by Iceland, and 1.2 percent by Liechtenstein.
The Norway Grants scheme is financed separately by the government of Norway to the tune of €804.6 million (USD 1.09 billion) in the current fuunding cycle.
The EEA and Norway Grants currently provide grants to 16 beneficiary countries: Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia, Slovenia and Spain.
What do the EEA and Norway Grants provide funding for?
Combined, the EEA and Norway Grants provide targeted financial support to help advance specific priority areas related to the beneficiary country’s economic and social development. The priority areas are called programme areas, and include:
- Environmental protection and management,
- Climate change and renewable energy,
- Civil society,
- Green industry innovation,
- Justice and home affairs
- Human and social development,
- Carbon capture and storage,
- Decent work and tripartite dialogue,
- Protecting cultural heritage,
- Research and scholarships.
How do the EEA and Norway Grants work?
Technically speaking, EEA Grants are distributed through an entity referred to as the EEA Financial Mechanism. The EEA Financial Mechanism is overseen by the Financial Mechanism Office, which is based in Brussels, reports to the Foreign Ministries of Iceland, Liechtenstein and Norway, and serves as a contact point for the beneficiary countries that are recipients of the EEA Grants.
Before a beneficiary country receives funds from the EEA and Norway Grants, it must enter into a contract with the donor countries. The contract, referred to as the Memorandum of Understanding, outlines specific details regarding how each programme area will be targeted in the beneficiary country. Each beneficiary country must have what is referred to as a National Focal Point. The National Focal Point is responsible for the implementing and monitoring of programs for which the grants are used as per the Memorandum of Understanding, and has the overall responsibility of reaching the objectives of the EEA Grants.
Other areas covered by the Memorandum of Understanding include listing the specific programme area and its objectives, the desired outcome, the size of the programme’s grant, who the programme operator will be, etc. Programme Operators handle the day-to-day tasks associated with developing and managing the programs which receive EEA and Norway Grants.
The donor countries negotiate with the beneficiary country over the details regarding how each programme area will be targeted, who will be responsible for what, and how the funds will be administered. Each programme targets a different priority and so it makes sense that each programme area needs to be separately addressed.
Once the donor countries and beneficiary country work out the details, the parties sign the Memorandum of Understanding and the programmes begin.
Hungary’s Memorandums of Understanding
Hungary entered into two separate Memorandums of Understanding before becoming a beneficiary of the EEA and Norway Grants.
First, Hungary’s government signed a Memorandum of Understanding to become the recipient of the Norway Grants on 13 November 2011. The counterparty to this contract was the Kingdom of Norway. An English-language copy of this document can be downloaded here. The priority sectors to be covered by the terms of this Memorandum of Understanding were:
- Carbon capture and storage;
- Green industry and innovation;
- Research and scholarship;
- Human and social development;
- Justice and home affairs; and
- Promotion of decent work and tripartite dialogue.
Two days later, on 15 November 2011, Hungary’s government signed a Memorandum of Understanding to become the recipient of the EEA Grants. The counterparty to this contract were the Kingdom of Norway, Iceland and the Principality of Liechtenstein. An English-language copy of this document can be downloaded here. The priority sectors to be covered by the terms of this Memorandum of Understanding were:
- Environmental protection and management;
- Climate change and renewable energy;
- Civil society;
- Human and social development; and
- Protecting cultural heritage.
Why did Norway suspend funding?
The root cause of the EEA and Norway Grants funding suspension has to do with the dismantling of Hungary’s National Development Agency.
Last year, the Hungarian government formally dismantled the National Development Agency. The agency, which was under the Ministry of National Development, had its roles and responsibilities transferred to the Office of the Prime Minister led by now-Minister Janos Lazar.
Lazar initiated a mass overhaul, reassigning the responsibilities and functions of the agency to various ministries and newly created government-owned nonprofits corporations. However, the “transfer” of the National Development Agency’s responsibilities to the Office of the Prime Minister only become fully effective starting 1 January 2014.
Prior to being dismantled, the National Development Agency was responsible for overseeing the implementation of European Union structural funds in Hungary. While the Agency itself was not perfect by any stretch of the imagination, it was a government unit that could be held accountable for the distribution of EU subsidies because it reported directly to the Ministry of National Development.
Lazar’s overhaul transformed the murky system through which EU structural funds were distributed into a virtual black hole of information overnight. Coming into force on 1 January 2014, Lazar’s new system is the source of the EEA and Norway Grants dispute.
Both Memorandums of Understanding signed in 2011 between Hungary and the EEA and Norway Grants donors clearly state that the National Development Agency would be Hungary’s National Focal Point (the central government administration responsible for implementing and monitoring the Grants scheme) for the EEA Grants.
The Hungarian government’s decision to unilaterally overhaul the function of the National Development Agency caught many by surprise, including the European Commission (which distributes funds to Hungary) and also the donors of the EEA and Norway Grants.
In the case of the EAA and Norway Grants, months of failed negotiations (which started in early 2014) concerning the breach of contract failed to lead to a solution. Finally, on 9 May 2014, the EEA and Norway Grants donors took unprecedented action and suspended any further funding due to concerns “about the negative effect that the lack of a National Focal Point has had on the implementation of programmes in Hungary”. Hungary had been a relatively large recipient of the fund until that point for the current funding period, for which it had been allocated €153.3 million, of which €11.76 million had already been paid out.
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