In anticipation of an imminent Greek default, France and Germany have agreed to a big old-fashioned bank bailout! What are the details? That’s a secret.

The leaders of France and Germany have announced that they are ready to recapitalise Europe’s troubled banks and have reached agreement on a “long-lasting, complete package” to counter the bloc’s debt crisis.

But the German chancellor, Angela Merkel, and Nicolas Sarkozy, the French president, refused to go into detail about the plans, saying they had to think of the markets and iron out “technical issues” before consulting the other 25 leaders in the European Union [...]

“We are determined to do whatever necessary to secure the recapitalisation of our banks,” Merkel said at a joint news conference with Sarkozy at the chancellery in Berlin on Sunday evening. “A sound credit supply is the basis of sound economic development,” she added.

The new deadline for action is the G-20 summit in the first week of November in Cannes.

As I mentioned late last week, Slovakia, the last holdout of the 17 nations whose unanimous approval is required, could screw this all up by refusing to agree to the already expanded European bailout fund, the EFSF, proposed in July.  They have a vote tomorrow in their Parliament.

But the Franco-German agreement is a somewhat big hurdle, as France and Germany were known to disagree on how to recapitalize European banks in the event of a Greek default. We don’t know what came out of these talks, but what’s been on the table is a massive recapitalization, partly through the EFSF, with Greece defaulting at the same time and bondholders getting a haircut of up to 60% on their debt. Germany has in the past preferred that national governments pay for their respective bank bailouts, probably because they pay a high share of the EFSF fund to cover other governments. Again, we won’t know what they decided for a couple weeks.

We do know that France, Belgium and Luxembourg have agreed to nationalize Dexia, the bank which went up in flames in a hurry.

The announcement came on the same day that the governments of France, Belgium and Luxembourg agreed to nationalize part of Dexia, Belgium’s biggest bank, infusing it with billions of euros in taxpayer money after it became the first casualty of the Greek sovereign debt crisis. Government officials had raced to prop up Dexia before global financial markets opened on Monday.

Dexia, which had received a bailout in 2008, “is the biggest euro zone bank failure in quite some time,” said Peter Zeihan, vice president of analysis at Stratfor, a geopolitical risk analysis company based in Austin, Tex. “It will force investors and shareholders to take second look at what they thought was stable.” [...]

Dexia, which has global credit exposure of about $700 billion, plans to create a so-called bad bank to house its troubled assets, including billions of euros’ worth of Greek, Italian, Portuguese and Irish debt. On Sunday night, the governments were still haggling over how to split the bill.

Dexia supposedly “passed” a recent round of stress tests which should have meant it is a strong bank without fear of failure. But those tests did not consider the possibility of a Greek default, which now appears inevitable, and Dexia was heavily exposed. So this is the second bailout in three years for Dexia, the first being during the financial crisis of 2008. It looks like the government of Qatar is being brought in to purchase the Luxembourg division of the bank, with Belgium paying EUR 4 billion for its division, and a series of loan guarantees for borrowing over the next decade that could cost as much as 90 billion. They will create a “bad bank” for toxic assets and wall it off from the performing assets.

The French-German agreement is a hopeful sign the Europeans can agree on how to structure and allocate the Euro bank bailout. But every single member of the Eurozone has to agree for it to work.