Merkel's toughest political ally turns milder on Greece

German Chancellor Angela Merkel (C) acknowledges an applause by delegates before her guest speech at a Christian Social Union (CSU) party meeting in Munich October 19, 2012.

MUNICH (Reuters) - German Chancellor Angela Merkel appears to have convinced the toughest audience in her political camp that Greece should be given the benefit of the doubt, and possibly more time to meet its painful savings targets.

Venturing south to talk to her Bavarian conservative allies can be like a trip into the lion's den for Merkel. The Christian Social Union's (CSU) approach to the euro zone crisis is often one of bruising euro-skepticism.

But at the CSU's annual congress in Munich on Friday and Saturday, the Bavarians joked they were behaving like "purring kittens" instead, sounding a more conciliatory tone towards twice bailed-out Greece than as recently as a month ago.

"If we turned a blind eye when Greece adopted the euro, it's now time to turn another blind eye," said Hannelore Gabor, mayor of Garching, a town of 16,000 inhabitants north of Munich.

"The costs would be much higher if we didn't," said the local politician, sporting a traditional Bavarian dirndl dress.

The CSU had played hardball on Greece for months, posing a threat to Merkel who needed to send a single, strong message abroad and to financial markets to get the crisis under control.

Bavarian Finance Minister Markus Soeder had called for Greece to leave the euro. Party general secretary Alexander Dobrindt even urged Athens to start paying half of pensions and state salaries in drachmas to ease a gradual exit.

But party members, clad in traditional outfits, eating pretzels and swigging beer, gave Merkel an enthusiastic welcome this weekend, greeting her entrance with music and applause.

Merkel largely skated around the subject of Greece in Munich, opting to attack the opposition Social Democrats instead.

But she won a minute-long ovation when she said the Greek protesters who took to the streets during her visit to Athens had, by exercising their right to demonstrate, displayed the freedoms and virtues that made Europe great.

"I waited for 34 years to protest. Who am I to complain about people protesting?" said Merkel, alluding to her origins in the former Communist East Germany.

Bavarians consider themselves passionate Europeans and readily admit they have benefited hugely from Europe, with 70 percent of their affluent state's goods and services exported to Europe. But they are also proud of their balanced budget and have little time for those who overspend.

COMPANIONABLE PET

The CSU has adopted a policy directive calling for a mechanism whereby countries can leave the euro, a step Merkel's Christian Democrats have shied away from, and for greater powers for Germany's Bundesbank within the European Central Bank.

Despite such differences, the two leaders appear to have formed an alliance that will help both with a year to go until regional elections in Bavaria and a federal German election.

Merkel needs the CSU to stay in line so her coalition government can appear unified.

Horst Seehofer's party has been in power in Bavaria for 55 years and, according to a poll this week, enjoys popularity rankings of 48 percent.

Seehofer also needs Merkel, who is more popular in Bavaria than he is himself, because she is perceived as a leader who can solve the crisis, and he willingly played second fiddle on Friday.

"Media are reporting today that the CSU has become a purring kitten, a companionable pet, and I don't want to disturb that impression now," Seehofer said.

Earlier he indicated Greece could get extra time to implement the reforms demanded of it in return for aid.

Many expect a new report by the "troika" of the International Monetary Fund, European Central Bank and European Commission will show that Greece's financial shortfall is larger than expected and that it will need more time to deliver.

"If the troika report contains a proposal for more time, we will talk about it," Seehofer said on the meeting's sidelines.

Grassroots members appeared to feel the CSU had played the Greek issue right.

"The CSU's line has paid off. Sometimes things need to be put into harsh words or the message gets lost," said Max Boeltl, a 29-year-old businessman.

"What the CSU has said so far has made a key contribution. The Greeks now know they can't just make demands. Of course now we will show solidarity to see if the Greeks deliver."

(Reporting by Annika Breidthardt; editing by Andrew Roche)