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SYDNEY —The Australian government will pay the French shipbuilder Naval Group US$558 million in compensation after a controversial decision to scrap a lucrative submarine contract. It was terminated after Australia last year signed a security alliance with the United States and Britain, which gave Canberra a huge defense upgrade.
The compensation payout brings the total cost of scrapping the French submarine contract to Australian taxpayers to US$2.6bn.
Terminating the agreement also caused a deep diplomatic rift between Canberra and Paris. The French President Emmanuel Macron accused the former Australian Prime Minister Scott Morrison of lying in public about the agreement to build 12 diesel submarines that was worth US$63bn. Macron also recalled France's ambassador to Australia in protest.
In abandoning the deal, Australia said it wasn't convinced the Attack Class, diesel-powered submarines it ordered from France were up to the job. Morrison said it would have been "negligent" to go ahead with the deal against advice from Australia's intelligence agencies. France has accused Australia of "lies and treason."
Morrison's successor, Anthony Albanese, wants to reset relations with France at a time when China is expanding its trade and security ambitions in the Pacific.
Albanese told reporters Saturday that the previous Australian government had badly mismanaged the submarine contract.
"The way that decision was handled has caused enormous tension in the relationship between Australia and France," Albanese said. "France, an important ally, an ally that we have a history of fighting alongside in two world wars and an ally that has a significant presence in the Pacific at a time when tension in the Indo-Pacific means that we need to work with our partners."
The submarine deal with France was scrapped when Australia joined the AUKUS, a trilateral security alliance, last September with the United States and United Kingdom. It gives Australia access to nuclear submarine technology and long-range missiles.
Analysts believe the accord between Washington, London and Canberra is an attempt to counter the rise of China in the Indo-Pacific region and beyond.
Nuclear-powered submarines could pose much more of a deterrent to China, although it could take years for the vessels to come into service.
China's recent attempts to broker a pan-regional security and trade accord with ten Pacific Island nations have failed, but Beijing has signed various agreements with individual states, including Kiribati, Samoa and Solomon Islands.
Australia and its partners are worried that China has ambitions to establish a military foothold in the region.
Beijing has insisted, however, that it has no intention of competing with other countries for influence in the Pacific.