The European Commission has suspended aid worth hundreds of millions of euro to Bulgaria and barred two key payments agencies from receiving EU funds following poor reports on corruption and mismanagement.
A report on the management of EU funds by the latest and poorest EU member said the fight against high-level corruption and organised crime was not producing results and the Commission had to act to protect taxpayers' money.
The commission produced an unprecedented second document on Bulgaria's poor handling of EU aid and confirmed its freezing of around €500m in aid.
The Bulgarian judiciary's failure to implement reforms and overcome major trial delays also came in for criticism from Brussels.
The reports were the harshest criticism ever levelled by Brussels at a member state.
A report on fellow newcomer Romania, which also joined in January 2007, pointed to political and judicial obstruction of corruption trials but avoided sanctions.
Commission President Jose Manuel Barroso called them a reality check and said they show that both the Bulgarian and Romanian governments need to step up their efforts on judicial reform, corruption and in the case of Bulgaria organised crime.
Bulgarian Prime Minister Sergei Stanishev promised action to remedy the shortcomings.
Analysts said the Commission was trying to set an example to other Balkan candidate countries and to reassure voters disenchanted with the 27-nation bloc's eastward enlargement.
But the EU executive softened the blow at the last minute by toning down the toughest wording of earlier drafts and omitting a threat to delay Bulgaria's entry into the euro single currency zone and the Schengen area of passport-free travel