Bulgaria and seven other EU member states do not yet meet all the conditions for the adoption of the euro, the European Commission has concluded in its convergence report.

The European Commission told Bulgaria, Cyprus, Denmark and Finland Wednesday that their budget deficits are too large, and set them under the so called “excessive deficit procedure,” special procedure under the EU’s Stability and Growth Pact to ensure that they will reduce switftly their state spending.

The EC Report setting Bulgaria under the excessive deficit procedure READ HERE

“Rigorous application of budget rules set out in the EU's Stability and Growth Pact is the best way to assure financial markets that the reduction of deficit and debt levels will be conducted properly and timely," said EU Commissioner for Economic and Monetary Affairs Olli Rehn during a news conference in Brussels Wednesday.

The European Union sets a cap on budget overspends at 3% of gross domestic product, and Bulgaria reached a general government deficit of 3.9% in 2009, according to latest data revealed in April 2010. Likewise, Cyprus breached its budget by 6.1%, Denmark is projecting a 5.4% shortfall this year, while Finland expects its deficit to reach 4.1%.

A total of 21 countries are already subject to EDPs, with Bulgaria, Cyprus, Denmark, and Finland now added to the list. Estonia and Sweden are currently the only EU countries within the debt and deficit limits.

The European Commission’s decision to place Bulgaria under the excessive deficit procedure has come a couple of weeks after the European Union's official statistics agency said the Bulgarian budget deficit in 2009 was wider than the government had estimated and exceeded the 3% ceiling.

In the first of its twice-yearly reviews of government finances in the 27-member bloc, Eurostat said the Bulgarian government's budget deficit was 3.9% of gross domestic product last year, which is up by 0.2% over the government's revised figure.

Bulgaria's center-right government announced earlier in April a larger than expected 2009 deficit allegedly caused by unaccounted procurement deals, signed by the previous Socialist-led cabinet. The previously undiscovered expenses increased the 2009 gap to 3.7% of gross domestic product (GDP) from an initial 1.9% under the EU rules, the cabinet said.

Prime Minister Boyko Borisov has blamed the increase on extra spending due to annexes to public procurement deals the previous government had signed with some 150 contractors at the end of its term. Borisov said his ministers were kept in the dark about the additional costs to the treasury.

Bulgaria's Finance Minister Simeon Djankov had orignally hoped to be able to submit an application for joining the euro zone waiting room, the ERM II in the spring of 2010, in order for Bulgaria to be able to adopt the euro in 2013. With the budget issues the Bulgarian government is now facing, experts say the earliest remotely possible date that Bulgaria could hope to join the euro zone is 2014.  

In its convergence report issued Wednesday, the European Commission has found that Estonia is the only one of the nine European Union member states under consideration for euro membership that is ready to adopt the single European currency.

"Estonia has achieved a high degree of sustainable economic convergence and is ready to adopt the euro on January 1 2011," European Commissioner for Economic and Monetary Affairs, Olli Rehn said in a statement. The Commission's endorsement comes despite concerns of the European Central Bank that Estonia's inflation rate might not be sustainable.

The other eight bidders to join the euro zone - Bulgaria, the Czech Republic, Latvia, Lithuania, Hungary, Poland, Romania and Sweden – are found not to meet all the necessary conditions yet.

Estonia's euro bid will now be discussed by the European Parliament and the EU heads of state and government before a final decision is taken by the Council of European Union finance ministers at their July meeting.

Detailed information about the country-specific procedures by the EC is available HERE