Speaking at the World Economic Forum (WEF) annual meeting here, she underscored the need for euro zone members to "develop a clear simple firewall that can limit the contagion" and create trust in the region.

Euro zone is a grouping of 17 nations that share the common currency euro.

However, Lagarde said that some progress is being made towards resolving the European turmoil. "There is work underway. There is progress as we see it," she added.

"No one is immune in the current situation... It is a crisis that could have co-lateral effect, spilover effect around the world. Everybody has an interest to solve this situation," she said.

The International Monetary Fund (IMF) sees three necessary solution to the current situation.

"The first one is about growth. Growth will be critical for many reasons to deal with the job issue, to deal with the fiscal consolidation and to necessitate value creation in the part of the world, where there is pretty much zero growth," Lagarde said.

European debt turmoil is not only hurting countries in the region but also threatens to derail global growth.

European Economic and Monetary Affairs Commissioner Olli Rehn yesterday had said the region needs a "fiscal compact" and is in the process of revamping the economic structure.

"Prevention is the name of the game and we want to prevent fiscal crisis and external imbalances that have happened in the past year with tremendous human cost," Rehn had said.