Die Welt is reporting that Cameron has done a deal with Merkel on treaty change.
The article notes that Merkel signed a letter penned by Cameron stating that the Council would not accept a budget increase higher than 2.9% in negotiations with the European Parliament. In return, Cameron will back Merkel's demand for a treaty change, reportedly assuring Merkel that he will secure the passage of a new treaty through the UK Parliament without a referendum.
As we argued earlier today, even if Cameron were to achieve a freeze to the EU budget, there’s nothing stopping MEPs and other member states from pushing through a substantial increase in 2012 or 2013 to make up for it.
If the reports are true, Cameron may well have severely underplayed the UK's hand, missing the opportunity to get real concessions in return for treaty change. A one-year 2.9% budget increase certainly doesn't cut it.
If true, Cameron has just given away the greatest leverage the UK has had in EU negotiations in a very, very long time...