Bulgaria stripped of EU funds because of graft

EU newcomer Bulgaria on Tuesday lost 220 million euros ($283 million) of European Union funds for failing to deal with corruption, the first time the EU executive has stripped a member state of funds in this way.

The European Commission urged Bulgaria -- described by the watchdog Transparency International this year as the EU's most corrupt country -- to take urgent corrective action or risk losing hundreds of millions more.

Bulgaria's Socialist-led government said the move was an "unexpected disappointment" and one government minister denounced it as "extremely unfair".

The Commission decided earlier this year to suspend 500 million euros in farm and road aid to Sofia over suspected fraud following its entry into the European Union in January 2007.

Tuesday's decision maintains the suspension, meaning Sofia will lose any uncontracted funds. "The contracting deadline is on November 30. The problem is that (the) 220 million can no longer be contracted," a Commission spokeswoman said.

EU Enlargement Commissioner Olli Rehn told a news briefing another 340 million euros of EU funds already committed to projects would be available for Bulgaria to use up until the end of 2009 -- provided it tackled remaining shortcomings.

He said the Commission had not been able to restore the accreditation of two Bulgarian agencies handling EU funds as reports had found "a too high degree of irregularities" and recent reviews had revealed new irregularities.

Rehn said the risk of political interference in the funding process had not yet been fully acknowledged by Sofia and the Commission had an obligation to protect EU taxpayers.

He declined to provide details of interference or new irregularities, except to say they involved "individual companies and people".

"I recognise action plans have been set up and legislation has been revised, however many of these measures are only a promise of future action and have not yet delivered concrete results," Rehn said.

URGENT STEPS NEEDED

"We hope that Bulgaria will now take urgently the necessary steps to improve the management of the funds."

The Bulgarian government said in a statement that the decision was "an unexpected disappointment", given Sofia's efforts in fighting corruption and boosting controls. But it pledged to keep up reforms.

"I am deeply disappointed. I think it (the decision) is extremely unfair," Deputy Prime Minister Meglena Plugchieva told the national radio from Berlin, where she is on an official visit. "I do not think it sends the right signal," she said.

The amount of aid hit by the move is tiny compared to the 11 billion euros of total EU funding which Bulgaria can expect to receive in the 2007-2013 period.

Asked whether such structural funds could eventually be affected, Rehn said they were the domain of another part of the Commission, but added: "I hope Bulgaria will be able to address the remaining shortcomings in that area too, like in the area of farm funding and transition facility funding."

After years of half-hearted reforms, Bulgaria has pledged to stop fraud with EU funds. But analysts doubt it has the will to cut links between politicians and crime bosses.

Economists have said funding losses would be a particular blow to the economy of the poorest EU state as it depends heavily on foreign cash to fund modernisation and cover a growing external deficit.

They also play into the hands of opponents of EU enlargement who said Bulgaria and Romania were not ready for membership.