Lasry: Europe could face Japan-style deflation era

Europe could be looking at a Japan-style deflationary environment for the next five years, investor Marc Lasry told CNBC on Wednesday.

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Lasry's Avenue Capital is continuing to buy credit-side debt at a discount in Europe. Over the last three or four years, the amount of debt that European banks have sold has increased by 100 percent, he said in a "Squawk Box" interview.

"The way that the banks were able to sell this debt is, they keep on buying sovereign debt, and then through that they make their profits, and then each year they end up using those profits to offset losses on that. And that's sort of of what happened in Japan over a 10 year period," said Lasry, who specializes in distressed debt investments.

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The way for Europe to avoid a deflationary period is to clock 4 to 5 percent GDP growth, he said.

"You're not having that. The reason everybody focuses on that is because GDP growth in Europe today is sort of, negative one, flat, up one. It's really not moving that much," he said.

The chairman and CEO of Avenue Capital said his firm is playing the credit side of the European debt market because the pressure is still on the banks to deleverage. "This is sort of a five year process, so for us it's going to be the gift that keeps on giving," he said.

Lasry is personally invested in Greek debt, but Avenue Capital does not buy sovereign bonds, he said.

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Europe is still in an investing phase because there is $2.5 trillion of debt, he said. "The supply side in Europe is still so great relative to the demand side in Europe," he added.