Europe's Debt Crisis Could Bring Stagflation: Wilbur Ross

Europe could be headed for a period of stagflation as governments struggle to reform their fiscal policies and growth weakens, investor Wilbur Ross told CNBC.

Debt will continue to hurt economies in the PIIGS nations—Portugal, Italy, Ireland, Greece and Spain—and contribute to a pattern of higher unemployment coupled with high inflation, said Ross, chairman of the W.L. Ross private equity firm.

The countries face a future of European Union and International Monetary Fund bailouts that will be accompanied by strict austerity measures.

"If they do make some of the budget cuts throughout Europe, government spending is over the half the economy," Ross said. "If you start cutting back on that, the economy is going to get weak and many of those economies, particularly in the South, are pretty weak already. So the economy will weaken—that compounds the tax problem—so it's kind of a vicious cycle."

He also spoke at length about the crippling debts and deficits the countries face, noting how difficult it will be to erase those shortfalls at a time of slower growth.

"The negatives are mostly in the ones that have the hardest time growing," Ross said. "That to me is the terrifying part."

Yet taking on more debt right now seems to be a given for the countries to avoid defaulting on the debt already on their books.

"You can't cure debt with more debt," Ross said. "All that does is buy a little more time. So the real question is, will they reform the things that need to be reformed in Greece while they buy the little bit of time with the debt?"