Blue shall be penalized. When Blue reaches the zone she is clear ahead. Red shall keep clear (rule 12) and give mark-room (rule 18.2(b) to Blue. Blue takes more room as necessary ti round the mark. When Red establish an inside overlap, she is not entitled to mark-room (rule 18.2(c)) and has to keep clear (rule 11). When Blue is luffing she has to give room for Red to keep clear (rule 16.1). Blue fails to give room to keep clear, because Red is not able to luff more, without touching the mark. Blue will not be exonerated by rule 21, because she is not sailing her proper course and therefore she is not sailing within mark-room.