Taoiseach Enda Kenny has said there will be no bank debt relief deal before the end of the year, quashing any remaining expectation of a breakthrough before Budget day next month.

In Brussels today, Mr Kenny replied in the negative when asked whether there might be a deal at the next EU summit on December 13th.

“The situation is that there will not be a decision on this before the next Council meeting and before the end of the year,” he told a lunchtime audience at a German think-tank.

The Taoiseach’s remarks, on the fringes of the summit on the new EU budget, make it clear that Minister for Finance Michael Noonan will have to formulate the Budget without any allowance for debt relief.

Last week Mr Noonan left open the possibility of a pre-Budget agreement with the European Central Bank to recast the Anglo Irish Bank promissory notes.

Mr Kenny said the leaders of Germany and France had agreed that Ireland was a “special” case, adding that the Government hoped to bring the debt relief question forward in talks on a euro zone “banking union”.

“We hope that during the course of 2013 our Minister for Finance will progress in that understanding and that decision, and \[that]\ it will be recognised in those discussions,” the Taoiseach said.

He also cited support from the members of the EU-IMF troika. “I hope that being serious ourselves, and proving that we're serious as we manage to move towards an exit of this bailout, that assistance will give us extra help.”

Earlier, Downing Street said there is “a long way to go” before EU leaders at a special summit in Brussels can agree a long-term budget. The comment came today following a meeting between David Cameron and European Council president Herman Van Rompuy.

Mr Cameron was the first of the EU’s 27 national leaders to meet summit chairman Mr Van Rompuy and European Commission president Jose Manuel Barroso ahead of what are expected to be marathon negotiations beginning this evening in the Belgian capital.

Arriving in Brussels early today, Mr Cameron insisted that any rise in European Union spending was “quite wrong” and said he would be fighting “very hard” to secure a good deal for British taxpayers and to keep the rebate negotiated by Margaret Thatcher in the 1980s.

Mr Cameron is calling for a real-terms freeze, or even a cut, in the budget for 2014/20 - the sole subject on the agenda for the summit which starts tonight and may run into the weekend.

Taoiseach Enda Kenny is set to align himself with French president François Hollande in an effort to defend Ireland’s share of EU agriculture funding at the talks.

Despite weeks of gloom over the prospects for a deal on a new seven-year spending plan, official sources are reporting a slight pick-up in sentiment about the prospects for the summit.

“There has been a certain increase in optimism over the last couple of days. The pendulum has swung in the direction of greater optimism but we’re still a long way from certainty,” said a senior European diplomat.

The talks on a package worth some €1 trillion come amid pressure for budget cuts as a result of the economic crisis, threatening allocations for agricultural and cohesion policies. Mr Kenny aims to maintain Ireland’s share of funding in each of these areas.

British demands for a budget freeze have dominated the pre-summit debate but diplomats point out that such countries as France, Italy, Spain, Sweden and Portugal have each expressed displeasure at a proposed draft budget from Mr Van Rompuy.

Arriving at the summit this morning British prime minister David Cameron said: "Clearly at a time when we are making difficult decisions at home over public spending it would be quite wrong, it is quite wrong, for there to be proposals for this increased extra spending in the EU."

British officials say they're working on securing a deal at the summit that begins today and may continue into the weekend.

However, a high-ranking figure in the summit said the present round of talks stands as the best chance for an agreement.

“I can’t see a better timeframe or a game-changer in the coming months,” the source said. “At this stage everyone is unhappy, which gives us the impression that we’re not too far off from a compromise.”

Mr Van Rompuy, who may keep the leaders in Brussels through the weekend to secure a deal, will table a compromise proposal tonight [Thursday] after a day of bilateral talks with government leaders.

While his team has insisted in private talks that there will be no change to his demand for a €80 billion cut from a €1.03 trillion European Commission proposal, he may “reshuffle” proposed cutbacks between policy areas.

Summit discussions are expected to continue late into the night and to resume tomorrow.

Mr Kenny’s top priority is to conserve as much as possible of Ireland’s €1.7 billion share of annual agricultural and rural development spending.

In the year after Mr Kenny’s storied “Gallic spat” with Mr Hollande’s predecessor, Nicolas Sarkozy, the Taoiseach’s alliance with the new French president marks a rapid change in relations with Paris.

Mr Van Rompuy has proposed a €25 billion cut in the agriculture budget, leading to claims from Irish farming interests that Ireland could lose as much as €1 billion between 2014 and 2020.

In Dublin this estimate is seen to be a little too high, but it is acknowledged that any cut in the overall allocation would lead to reduced funding for Ireland.

Mr Hollande has pushed back strongly against the Van Rompuy proposal in defence of the agriculture budget and he is expected to rally support from Italian leader Mario Monti.

This marks a big challenge in its own right for Mr Hollande, who has cast France as a “bridge” between troubled southern powers such as Spain and Italy and the group of prosperous northern countries led by Germany.

In contrast to her alliance with Mr Sarkozy, German chancellor Angela Merkel has spent more time in the countdown to the summit cultivating Mr Cameron and Polish leader Donald Tusk.

With Dr Merkel perceived to be in close contact with Mr Van Rompuy, the pre-summit assessment is that she is relatively comfortable with the current draft proposal.

“The French are somewhat exasperated with the effort made by the Germans. The French are used to getting their own way easily,” said the senior European diplomat.

While Ireland’s share of Europe’s cohesion budget fell in the boom years, the Taoiseach is expected to push for recognition of our high unemployment rate as a basis for maintain funding in this area.