France and Belgium rushed to the aid of Dexia SA on Tuesday, in what will be the first state rescue of a European bank in the euro zone sovereign debt crisis, Reuters reported. The lender to hundreds of French and Belgian towns, which also needed propping up after the 2008 financial crisis, will see its French municipal finance arm broken off and put under the ownership of French state banks.

French President Nicolas Sarkozy will have to walk a fine line on Wednesday, when his government presents its 2012 budget amid faltering growth and a deepening debt crisis in the euro zone, The Wall Street Journal reported. Mr. Sarkozy's room to appeal to French voters ahead of next year's presidential elections is constrained by his commitment to rein in France's deficit—the highest among triple-A-rated euro-zone countries—and retain its prized credit rating. "In France, the problem of deficit reduction is a credibility problem," said ING economist Julien Manceaux.

Workers at an oil refinery owned by LyondellBasell Industries NV in southern France voted Tuesday to strike to protest against the closure of the plant announced by the company earlier in the day. "They voted around noon and the strike started immediately," Charles Foulard, a leader of the CGT Union for the petrochemical industry, told Dow Jones Newswires in a telephone interview.

Investors and analysts who think a government bailout for the troubled French banking sector is increasingly likely are focussing on what form any aid could take, even as banks continue to deny they need state help, Reuters reported.

France has denied reports that it had drafted a plan to inject up to €15 billion into its major banks amid fears over their heavy exposure to Greek debt, the Irish Times reported. The Journal du Dimanche yesterday reported that the state offered a €10-15 billion bank recapitalisation at a meeting earlier this month with senior officials from five institutions: BNP Paribas, Société Générale, Crédit Agricole, Banque Populaire-Caisse d’Épargne and Crédit Mutuel.

French president Nicolas Sarkozy has given the green light for a highly political budget, placing the burden of new revenue raising on the richest and on big companies while preserving the benefits of some tax breaks for ordinary workers, the Financial Times reported. Just nine months away from a presidential election, France’s high earners will face higher taxes as the government seeks some €12bn in extra revenue by the end of next year to help bring public finances under control.

Some of France’s wealthiest individuals, including the L’Oréal heiress Liliane Bettencourt, have called for a tax on the rich in a gesture of national solidarity as the government prepares to announce swingeing cuts to bring public finances under control, the Financial Times reported. The proposal follows a similar demand in the US from billionaire investor Warren Buffett, who earlier this month criticised the fact that his tax rate was lower than many of those who worked for him.

For the second time in as many weeks, President Nicolas Sarkozy flew to Paris for the day from his holiday spot on France’s Mediterranean coast to try to calm the markets, The Economist reported. His meeting with the German chancellor, Angela Merkel, at the Elysée Palace on August 16th took place as the panic of recent weeks had given way to mere gloom about the stagnating euro-zone economy.

France and Germany on Wednesday increased the pressure on their euro-zone peers to improve fiscal discipline in the bloc with a proposal to cut off the region's wayward spenders from key European Union transfer funds, The Wall Street Journal reported. The proposal marks an effort to boost fiscal discipline across the euro zone by giving countries incentives to rein in spending and cut their budget gaps. But the idea is controversial and could be difficult to enforce, as well as to sell to the rest of the bloc.

France, Italy, Spain and Belgium have banned all short selling of financial stocks for 15 days in response to sharp share price falls this week, but they failed to convince other regulators to go along with a European Union-wide prohibition, the Financial Times reported. The bans on the controversial practice where investors aim to profit from price falls will take effect on Friday morning. But other main markets, including the US and the UK, have said they have no plans to follow suit.