When in July 2008, announcing its decision to suspend hundreds of millions of euro in aid to Bulgaria because of concerns about corruption and fraud, the European Commission said: "Bulgaria itself has to make the commitment to cleanse its administration and ensure that the generous support it receives from the EU actually reaches its citizens and is not siphoned off by corrupt officials, operating together with organised crime".

On November 25, five days before the deadline by which Phare pre-accession funds could be awarded to contractors, Kristina Nagy, the spokesperson for European Enlargement Commissioner Olli Rehn, told a news conference in Brussels that for Bulgaria, having failed to root out corruption at two payment agencies identified by the commission as serious problems, it was too late.

In a withering judgment on the steps that Bulgaria had tried to show the EC as remedies to the situation, Nagy said: "Most measures are only a promise of future action, and have not yet been delivered."

The steps taken by Bulgaria after the July report by the EC included setting up a special unit of prosecutors to investigate maladministration and other shortcomings in dealing with EU funds, and pushing a conflict of interest law through Parliament.

"It is important that we protect the interests of taxpayers across Europe, including in Bulgaria," Nagy told the news conference.

"We hope that Bulgaria will now take urgently the necessary steps to improve the management of the funds," she said, adding that it was unprecedented for a member state to lose funds this way.

Nagy said that if Bulgaria continued to fail to deal with the problems outlined in the July EC report, some of the 11 billion euro in cohesion and structural funds set aside to be handed to Bulgaria by 2013 would also be in jeopardy.

The 220 million euro was funds set aside for Bulgaria but which had not yet been allocated to projects. The deadline for allocating the funds was November 30 and with the accreditation of the two agencies - the Phare executive agency of the Regional Development and Public Works Ministry and the central finance and contracts unit of the Finance Ministry - effectively withdrawn, the funds are now lost.

As to the 115 million euro that had been set aside for major infrastructure projects including highways, EC regional policy spokesperson Dennis Abbott said that no decision had been taken yet but there was optimism that the plan announced by the Bulgarian Government after July to deal with shortcomings in dealing with EU funds would bring results.

German news agency DPA reported Rehn as saying that cutting the funds due to Bulgaria had been an uncomfortable decision.

"I regret this decision because Bulgaria is an economic success story, it's a very committed and constructive member state," he said.

"But we have to play by the book and we have to respect the rules of financial management and therefore there is for the moment no other option," Rehn said.

In its July 2008 report, the EC said that EU funds earmarked for Bulgaria were aimed at helping less favoured regions in Bulgaria, catalysing needed investment in transport, telecommunications and energy infrastructure, promoting competitiveness, fostering social cohesion and enhancing Bulgaria's overall economic performance and stability.

"In particular the lack of or will to use enforcement powers to remedy irregularities and fraud by immediate recoveries or other protective measures and the de facto non-independence of the national audit authority and implementing agencies give rise to serious concern. The lack of accountability and transparency in public procurement when tendering EU funds is a grave problem," the report said, adding that high level corruption and organised crime exacerbated these problems of general weakness in administrative and judicial capacity.

Meglena Plougchieva, who was appointed earlier this year as deputy prime minister in charge of sorting out problems in dealing with EU funds, reacted with "disappointment" to the November 25 announcement.

"Over the past six months the personnel in both agencies have made enormous efforts to remove the shortcomings that have been made over the years and live up to the requirements of the EC," Plougchieva said in a statement.

It had turned out that the time had been too short to correct the shortcomings in the two agencies, she said.

"Bulgarian authorities will continue working at the same rate and will strictly apply European rules and procedures, guaranteeing the correct and transparent spending of all European funds granted under pre-accession and structural programs and protecting the interests of both Bulgarian citizens and European taxpayers," Plougchieva said.

Right-wing minority opposition party the Democrats for a Strong Bulgaria called on the Government to resign, while calls were also made for Prime Minister Sergei Stanishev to attend Parliament to explain the situation.