The move came after Hungary was unable to reach a deal with the three countries — the only non-EU members of the European Economic Area — over how the funds would be disbursed.

Norway, Iceland and Liechtenstein fund programs in 15 countries to help reduce social and economic disparities across Europe.

According to the report, the dispute underscores a dilemma that policymakers face across Europe — how to fund programs for Hungarian citizens while ensuring those distributing the money are sufficiently independent of political pressures. And it reflects broader concerns that Budapest is eroding basic democratic norms in Hungary, creating political pressure on the EU to cut off some of its own funding to the country.

In disbursing their own grants, the three countries insist that a segment of civil society funding be administered by an entity chosen through an open call, where candidates are vetted on competence, expertise, and management capacity. While the Hungarian government originally agreed to the selection criteria, the Norwegian government says Budapest ultimately objected to the chosen candidate.

"When the government cannot agree on the basic principle that we agree with all other 14 beneficiary countries about, then we have to draw the line," said Norwegian Foreign Minister Ine Marie Eriksen Søreide, whose country provides 95% of the funds. Søreide, a member of Norway's Conservative Party, said the funding is a voluntary contribution — lamenting the loss of funds for Hungarian civil society groups.