* Schelling replaces predecessor who quit in tax reform row
* OVP picks reformist politician with business background
(Recasts with party confirmation, adds details and background)
By Michael Shields
VIENNA, Aug 31 Austria's conservative People's
Party (OVP) on Sunday chose as finance minister Hans Joerg
Schelling, a politically connected millionaire lauded by
supporters for whipping the social security network into shape.
The OVP, the junior partner in a government coalition with
the Social Democrats, said the party leadership unanimously
picked Schelling, 60, head of the national social security
system, to replace Michael Spindelegger, who quit last week in a
row over tax reform.
The government shake-up in the wealthy euro zone member
comes as French President Francois Hollande revamps his
government after a similar political row over how to boost a
flagging economy without deepening the budget deficit.
As well as pushing through efficiency reforms in the social
security system that have turned deficits into surpluses,
Schelling has modernised the influential business lobby the
Economic Chamber as its deputy head.
That track record helped get him the post of chairman of the
ailing Volksbanken AG after its state rescue in 2012,
his first job in banking.
Colleagues say his experience leading two big home
furnishing chains give him the real-world business nous to
handle being Austria's fourth finance minister since 2011.
Schelling says he does not shy from confrontation. Asked in
a recent interview why Austrian politicians lack reform zeal, he
said: "Fear of losing power, fear of unpopular decisions and
fear of being unloved. I have none of all three."
The new OVP leader and vice-chancellor, Reinhold
Mitterlehner, the economy minister, had said he would prefer not
to serve as finance minister as well, a tricky dual role that
Spindelegger had performed.
Spindelegger resigned on Tuesday, accusing party colleagues
of disloyalty for questioning his refusal to cut income tax
unless the government could do so without raising other levies,
putting him at odds with the Social Democrats and members of his
own party who favour stimulus over austerity.
Mitterlehner has said his stance would not be very
different, but added he was open to talks that would break what
he called a damaging stalemate hampering the cabinet's work.
His apparent openness to negotiation may boost prospects for
a deal on policies to boost a flagging economy, but would
require a tricky balancing act to accommodate OVP fiscal hawks.
Schelling now gets to tackle a host of challenges.
The budget deficit is projected to rise to 2.7 percent of
gross domestic product this year and debt to nearly 80 percent
of GDP thanks to the costs of winding down stricken nationalised
lender Hypo Alpe Adria.
The economy, which grew just 0.2 percent in the second
quarter, is struggling. The central bank last week cut its
forecast for 2014 GDP growth to 0.9 percent from 1.6 percent.
The government faces lawsuits from debt holders over its
decision to wipe out 890 million euros worth of subordinated
debt guaranteed by Hypo's home province of Carinthia and to
seize 800 million euros from former Hypo owner BayernLB
to help finance the wind-down.
Schelling's role as Volksbanken chairman make him uniquely
placed to understand the challenge the bank faces as major euro
zone banks undergo stress tests. The partly nationalised lender
is likely to need more capital, sources close to the matter have
(Editing by Robin Pomeroy)