The European Commission has refused to give a green light to Romania and Bulgaria joining the EU.

Both countries are due to join on 1 January but the EC has refused to sign off on both countries’ membership applications, deferring a decision on the enlargement until October.

The EC’s progress report marks a dramatic reversal of fortune for Romania, which had been seen as the problem country all along but has now overhauled Bulgaria in the race to the finish line.

The change is thought to be mainly because of Bulgaria’s lacklustre efforts at controlling organised crime and tackling official corruption.

Money laundering is also identified as a problem, as is insufficient financial controls over the structural funds Bulgaria will get when it joins.

Both Bulgaria and Romania are cited for not having agencies to pay out EU agriculture subsidies, which could mean these funds are withheld until the agencies are in place.

The report, presented to the European Parliament in Strasbourg, also warned that both countries could face serious membership restrictions and cuts to EU funds even after they join.

A special monitoring system could also be put in place in the first three years after they join if efforts to tackle corruption and reform the judiciary do not yield results.