Norway said Hungary refused to appoint "the best-qualified candidate" to manage the funds allocated to civil society.
Norway announced on Friday that it will not provide financial aid allocated to Hungary after the two countries failed to reach an agreement over who should distribute the funds meant for civil society.
Hungary was set to receive 2.3 billion Norwegian kroner (€220 million) from the European Economic Area (EEA) and Norway Grants Scheme through which the Scandinavian country and to a much lesser extent Lichtenstein and Iceland — which are not part of the EU but are members of its internal market — fund programmes in EU countries to reduce social and economic disparities.
Norway's Ministry for Foreign Affairs said in a statement that "the donor countries have set an absolute requirement for all of the 15 beneficiary countries that the fund for civil society must be administered independently of the authorities."
"Hungary has accepted this, but has not accepted the appointment of the best-qualified candidate for the task. We have therefore been unable to reach agreement, and under the conditions set out in the Memorandum of Understanding (MoU) we signed with Hungary in December 2020, no programmes will be implemented in Hungary under the EEA and Norway Grants scheme during that period," it added.
The funding allocated to civil society was approximately 100 million Norwegian Kroner (€9.6 million).
"Norway owes us this money, because Norway, without being a member of the European Union, participates in the common market, enjoys its benefits; however, at the same time, the country does not have to face other excellent rules of the EU and does not have to bear other burdens, such as paying into the EU budget," Gergely Gulyás, Minister of the Hungry's Prime Minister's Office, said on Thursday
"The country therefore owes us this. We have not yet found a method through which the debt could be repaid now, but we are looking for it," he added.
Budapest has been criticised by the EU in recent years for reforms introduced by conservative Prime Minister Viktor Orban which Brussels say aim to weaken judicial independence, rights for LGBT+ people, as well as NGOs.
In December, the European Court of Justice ruled that the Hungarian government is breaking EU law by restricting the financing of NGOs.
The government said the 2017 law, which imposed a €22,000 annual limit on foreign donations and required NGOs to list every foreign sponsor donating more than €1,400 per year, aimed to counter money laundering or the financing of terrorism.
But the ECJ found that it constitutes "discriminatory and unjustified restrictions" and that it violates both the free movement of capital and fundamental rights.