SOFIA (Reuters) - Bulgaria’s government approved an action plan on Wednesday that envisages the country entering the “waiting room” for euro membership and also joining the European Union’s banking union by the end of June next year.

Bulgaria applied in July to enter the exchange rate mechanism (ERM-2), a mandatory two-year precursor to adopting the euro, after euro zone finance ministers and the European Central Bank gave Sofia the green light.

Bulgaria, whose lev currency has long been pegged to the euro via a currency board, is the first non-euro zone member to seek to join the banking union, which will allow the ECB to monitor its top lenders.

To enhance its chances, Sofia must improve its macro-financial framework, strengthen supervision of non-banking financial sector including pension funds and insurance firms, as well as working harder for combating money laundering.

It also needs to improve the bankruptcy legal framework after reviewing legislation and drafting the relevant legislative amendments.

“Implementation of the above measures will ensure compliance with pre-commitments in policy areas that are of major importance for the smooth transition to ERM-2 and the banking union by July 2019 and, as a result, the euro will be implemented,” the center-right government said in a statement.

The ECB is expected to carry out an asset quality review and stress tests on Bulgarian banks before it gives its nod for entry in a process that may take a year, but could be longer, depending on the Black Sea nation’s progress.

With low inflation, budget surpluses and low public debt, Bulgaria already meets the nominal criteria for adopting the single currency.

But its economic output per capita is just half the EU average, and widespread graft widespread graft and troubles at some of its banks have cast a shadow over its euro prospects.

Its fourth largest bank collapsed in 2014 and just this week the liquidation of a Cyprus-based insurance company left some 200,000 Bulgarians without car insurance, prompting the resignation of the head of insurance supervision.