From The Financial Times

By Kerin Hope and Theodor Troev

Bulgaria has lost €520m of European Union funding for failing to crack down on fraud and corruption among officials appointed by the Socialist-led coalition government, the first time the European Commission has stripped a member state of funds in this way.

The Commission said in November it would not renew the accreditation of two government agencies responsible for disbursing EU funds which have been under investigation by Olaf, the EU's anti-fraud agency.

As a result, Bulgaria - the EU's poorest member state - will lose €220m of pre-accession funding that still had to be allocated. The government will have to use funds from the budget to cover another €300m worth of contracts frozen by Brussels last July over suspected fraud.

In October, Bulgaria was rated the EU's most corrupt member state, falling below Romania, in Transparency International's latest global index of corruption perceptions.

The government pledged to clean up its poor record on high-level corruption and organised crime after the Commission issued a scathing report in July and threatened to withhold almost €1bn of funds unless progress was made.

Meglena Plugchieva, a member of Bulgaria's negotiating team for EU membership, was appointed deputy prime minister with a brief to eliminate graft. She has produced an action plan to counter administrative corruption.

But a Commission spokesperson has said that "most measures taken are only a promise of future actions and have not yet delivered concrete results".

Mrs Plugchieva called the Commission's decision "disappointing". She said: "The administration made tremendous efforts in the past six months. But we will continue to work . . . to protect the interests of Bulgarian and European taxpayers."

Commission officials have said Bulgaria's weak judicial system is another obstacle to progress.

A former head of the road-building agency, which lost its EU accreditation, was recently convicted of soliciting a bribe in an EU-backed project. He received a 12-month suspended sentence.