Cyprus named Panicos Demetriades as its central bank governor, an economist who called for Germany to ditch the euro.

Demetriades will succeed Athanasios Orphanides as head of the Central Bank of Cyprus on May 3, government spokesman Stefanos Stefanou told reporters in Nicosia on Saturday. Because Cyprus is part of the 17-nation euro area, Demetriades will join the European Central Bank’s Governing Council for his five-year term and help set interest rates for the region.

Demetriades inherits an economy in turmoil, with banks reeling from losses on their exposure to Greece and the government unable to borrow on financial markets. Orphanides, a policy maker with 17 years’ experience at the US Federal Reserve, failed to win a second term in office after clashing with the island’s government over fiscal policy and slow pace of economic reforms.

Cyprus, the euro area’s third-smallest economy, needs “serious reforms to improve competitiveness, to improve the functioning of markets, and we have not dealt at all with these key issues,” said Zenon Kontolemis, a former International Monetary Fund economist who now teaches at the University of Cyprus. “We also need reforms of the public sector and of institutions.”

The island’s economy will shrink 0.5 percent this year, according to the ministry of finance. The government on December 23 signed a 2.5 billion euros loan agreement with Russia to finance its 2012 fiscal deficit and maturing debt. The government has also called on the ECB to start buying its sovereign bonds.

Demetriades may not find support among European policy makers for his view that Germany should exit the euro to help peripheral nations regain competitiveness.

“Without Germany in the eurozone, the euro would quickly depreciate to a level that would help reinstate the competitiveness of the periphery,” Demetriades wrote in a letter to the Financial Times published on May 11 last year. Germany’s exit would be preferable to imposing austerity on struggling nations or allowing them to depart, he said.

Demetriades, 53, has a PhD in economics from Cambridge University. He began his career at the Central Bank of Cyprus in 1985 and in 1999 worked in the office of then World Bank Chief Economist Joseph Stiglitz, according his curriculum vitae. Demetriades has been professor of financial economics at the University of Leicester since 2000.

“We wish Panicos Demetriades success in the difficult task he assumes,” Stefanou said.

[Bloomberg]