The historic enlargement of the European Union to embrace former Iron Curtain countries will continue with Bulgaria and Romania, it was confirmed today, after both countries were judged to have made sufficient progress to merit accession on January 1.

But the threat of sanctions hangs over both unless they demonstrate further reforms, including stepping up the fight against corruption and organised crime, improving controls over livestock products, and securing the robust distribution of millions of euros in European funds.

An assessment report on the two accession countries, released to the European Parliament in Strasbourg this afternoon, called for "immediate corrective action" - although this would not stand in the way of them becoming the EU's 26th and 27th members.

Corruption "remains a problem" in Bulgaria, while in Romania it is still "a concern in particular within local government", according to the European Commission.

While the country has passed legislation to tackle the problem, "so far no successful prosecutions for money-laundering can be reported", the report stated. It added: "There is still insufficient co-operation between the bodies involved in the fight against organised crime. There is no systematic confiscation of assets of criminals."

In the field of judicial and criminal reform, Bulgaria was set six "benchmarks" (targets) for immediate reform, and Romania, four.

The report listed advances in both countries since their previous assessment in May, but also much work still to do.

Without completion of judicial reforms, the countries could be excluded from the EU criminal justice system, with a refusal to recognise their court judgments or arrest warrants.

Failure to establish payment agencies for massive EU subsidies could lead to the loss of up to 25 per cent of the aid due. Bulgaria was also given a stiff warning that its aviation standards must improve urgently, or its flights might be banned from EU airports.

Bulgaria and Romania applied for membership in 1995 and accession talks began in 2000.

In its conclusions today, the European Commission said: "There has been some progress in the areas of judicial reform and the fight against corruption, money-laundering and organised crime, but further tangible results are needed.

"Overall, Bulgaria and Romania have made far-reaching efforts to adapt their legislation and administration to the laws and rules of the European Union."

However, Jose Manuel Barroso, the Commission President, has given warning that there would be no further enlargement without a resolution to the constitutional crisis within the EU, after the rejection of the proposed constitution by French and Dutch voters. That could mean a longer wait than expected for Croatia and other countries hoping to join, including Macedonia and Turkey.

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The six judicial targets for Bulgaria are:

Romania must:

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