The French government has said that it will go ahead with 1.2 billion euro ($1.6 billion) contract to supply Russia with two Mistral helicopter carriers because cancelling the deal would harm Paris more than Moscow.
In the wake of the crisis in Ukraine, the United States had been pressing France as well as Britain and Germany to take a tougher line against Russia and cancel the Mistral contract.
But France refuses to link the helicopter carrier deal to the US/EU debate over tougher sanctions against Russia.
A French government official travelling with President Francoise Hollande in Azerbaijan Sunday, who asked not be named, told reporters that the contract was too big to cancel and that if France didn’t fulfill the order it would be hit with penalties.
"The Mistrals are not part of the third level of sanctions. They will be delivered. The contract has been paid and there would be financial penalties for not delivering it.
"It would be France that is penalized. It's too easy to say France has to give up on the sale of the ships. We have done our part," the official said.
President Hollande also said earlier on Saturday that the contract will go ahead.
“This contract was signed in 2011, it will be carried out. For the moment it is not in question,” President Hollande said on Saturday during a visit to German Chancellor Angela Merkel’s electoral district.
The Russian defense ministry warned Paris in March that it would have to repay the cost of the contract plus additional penalties if it cancelled the deal.
EU foreign ministers met in Brussels Monday and expanded their sanctions over Russia's stance on the Ukrainian crisis, adding two Crimean companies and 13 people to the bloc's blacklist, EU diplomats said.
They have threatened a further widening of sanction if the Ukrainian presidential elections do not go ahead on May 25.
US Secretary of State Victoria Nuland expressed concern over the deal on May 8 after US lawmakers had demanded more pressure be put on France to stop the contract.
“We have regularly and consistently expressed our concerns about this sale, even before we had the latest Russian actions, and we will continue to do so,” Nuland told the House Foreign Affairs Committee.
US Secretary of State John Kerry is due to meet the French Foreign Minister Laurent Fabius in Washington Tuesday and President Barak Obama is expected to raise the issue during a visit to France next month to commemorate the D-Day Normandy landings.
US officials have suggested France could sell the ships to another buyer or sell them without the advanced technology, although it is not at all clear at this late stage who the other buyer could be.
The French deal was Moscow’s first foreign arms purchase since the end of the Cold War and was hailed by then President Nicholas Sarkozy as an important step forward in French-Russian relations. The contract has created some 1,000 jobs in French shipyards.
The first of the two ships, the Vladivostok, is due to be delivered by November this year and the second, called Sevastopol, will arrive in St Petersburg for further fitting out with Russian weapons systems in November 2015 and will join the Pacific fleet in the second half of 2016.
The Mistral can carry up to 16 attack helicopters such as Russia’s Kamov Ka-50/52, more than 40 tanks or 70 motor vehicles and up to 700 troops. The ships for Russia have been modified from the version used by the French navy to operate in northern altitudes and ice covered seas.
The Russian navy will fit the ships with air defense systems and rapid fire artillery guns to allow them to go on combat missions with fewer escort vessels.