PARIS -- France says it will go ahead with the sale of a warship to Russia despite calls for an arms embargo against the country, highlighting how Europe's strong business ties are hindering its ability to punish Moscow over the crisis in Ukraine.
Western powers say Russia is supporting the insurgents in eastern Ukraine who allegedly shot down a Malaysian Airliner last week, killing all 298 people on board.
European Union foreign ministers met Tuesday to consider more sanctions against Russia but agreed only to impose more asset freezes on individuals, leaving economic relations untouched.
Some countries, like Britain, argue the plane crash has raised the stakes and Europe should not go soft on Russia.
But other countries are more cautious, mindful of the potential costs of harming business relations. Among other things, Germany imports a third of its oil and natural gas from Russia. France's commercial deals include the delivery of two warships, the biggest ever sale by a NATO country of military equipment to Moscow.
German Foreign Minister Frank-Walter Steinmeier said an arms embargo on Russia was discussed Tuesday, pushed for by the UK and others, but that EU members only agreed to restrictions on "future contracts" -- meaning France would get to go ahead with its sales of warships.
French President Francois Hollande on Monday night warned about the costs of cancelling the deal. The first warship, the Vladivostok, is nearly finished and due to be delivered in October.
"The Russians have paid. We would have to reimburse 1.1 billion euros ($1.5 billion)," he said.
Hollande said the warship deal wouldn't fall under new sanctions because it was finalized in 2011. French officials have also argued that the ship would be delivered without any weapons.
He said delivery of the second warship included in the deal could "depend on Russia's attitude."
Paul Ivan, a policy analyst and sanctions specialist at the European Policy Center, a Brussels think-tank , pointed out that France risks losing future arms deals with NATO members in central and eastern Europe, some of whom are particularly fearful of Russia.
Ukrainian foreign minister Pavlo Klimkin criticized the sale as violating the EU's own code of conduct, which forbids EU nations from exporting arms if they "would provoke or prolong armed conflicts or aggravate existing tensions."
U.S. sanctions against Russia have been stronger than Europe's. Last week, it blocked high-profile oil companies and banks from accessing U.S. markets for financing. Action from the EU has mainly targeted individuals instead.
U.S. State Department spokeswoman Marie Harf criticized the French warship deal.
"Clearly we think it's completely inappropriate and we've told them they should not do it," Harf told reporters in Washington.
France's contract for the warships covers the construction of two ships from the French town of Saint-Nazaire by the French state-owned military contractor DCNS and the French shipbuilding company STX.
The Vladivostok's sister ship, the Sebastopol, is currently under construction. It is scheduled to be delivered by the end of 2015.
Each ship can carry 700 troops, 16 helicopter gunships, and as many as 50 armoured vehicles.
People in the Netherlands are shocked to know that 400 Russian sailors are currently in Saint-Nazaire training aboard the Vladivostok "when we are waiting for 300 bodies to come back," Dutch lawmaker Esther de Lange said at a European Parliament hearing.
