As world finance chiefs gather in U.S. capital Washington for the bi-annual World Bank and International Monetary Fund meetings, the need for solution to a worsening debt crisis in the eurozone is gaining urgency, as it threatens to undermine confidence and throw global economy into territories of more uncertainty.

Christine Lagarde, managing director of IMF, adressed the annual International Monetary Fund and World Bank meetings in Washington DC, capital of the United States, Sept. 23, 2011. [Zhang Jun/Xinhua]

Europe's problem features prominently in discussions at the meetings. In remarks to reporters, Antonio Borges, IMF's European Department director, said on Friday that sovereign debt crisis in Europe needs "urgent action," otherwise the problems of relatively small economies such as Greece risk mushrooming to the rest of Europe.

The solution, according to Borges, is restoring confidence in markets, and making the case to investors that sovereign debt of European countries deserves their capital.

But market continued its nervous streak on Friday, as concerns grow about a possible Greek default's impact on the banking sector, offsetting vows from Group of 20 leading economies Thursday night to shore up the financial system. European shares fell 1.8 percent, extending Thursday's losses of almost 5 percent, with banking shares suffering the most. Even U.S. stocks, which ended higher on Friday, suffered sharp losses for the week. The blue-chip Dow tumbled 6.6 percent on the week, the worst since Oct. 2008.

The worries are legitimate, according to rating agencies. On the heels of rating agency Standard & Poor's decision this week to downgrade Italian sovereign debt and seven top Italian banks, credit rating agency Moody's issued two credit downgrades in the crisis-hit eurozone on Friday, marking down leading Greek banks by two notches and Slovenian debt by one notch.

In a discussion on Thursday, Christine Lagarde, managing director of IMF, acknowledged the seriousness of the situation, saying it undermines market confidence, while Mohamed El-Erian, co- chief investment officer at PIMCO, the world's biggest bond fund, admitted he still frets at the prospects of a full-on European debt crisis.

Europe has been facing the debt problem for some time. "Within the euro area, many countries have made good progress in reducing high deficits and specifying medium-term plans and have committed to enhancing fiscal institutions," said the IMF in its Fiscal Monitor report published prior to the meetings. "Nevertheless, borrowing spreads have risen significantly in larger economies, including Italy and Spain, showing that market sentiment can change abruptly."

Now the problem teeters on the brink of becoming a "contagion." The Group of 24, a group of emerging and developing countries meeting on the sidelines at the World Bank/IMF annual meetings, voiced worries Thursday over "the crisis of confidence in advanced economies and its spillovers" in emerging and developing counties.

The group, which includes large emerging economies such as Brazil and India, said in a statement that there is need for "more decisive action by the euro area" to address its debt crisis, as well as for advanced economies to tackle "weaknesses in bank balance sheets."

World Bank head Robert Zoellick, on his part, called on Europe, Japan, and the United States "to address their big economic problems before they become bigger problems for the rest of the world."

"Not to do so is irresponsible," he said.

Echoing his remarks, Lagarde said debt burdens and capital-weak banks "could actually suffocate the recovery" in the world economy and spark more crises in poor countries.

But how can the eurozone turn things around as there appears to be a lack of "sense of urgency" on the issue, according to Lagarde.

According to the IMF chief, political leadership is one thing the turnaround couldn't be done without.

"What is needed, and what certainly we hope to be able to help generate on the occasion of the annual meetings is the political leadership," Lagarde said at a press conference Thursday.

Edwin M. Truman, senior fellow at the Peterson Institute for International Economics, argued that what Europe needs is not discussing the mechanism of a financial-support channel, but action.

"What is required is for the European authorities to decide to use the resources and authorities of the existing institutions in conjunction with each other to supply the firepower to governments implementing credible economic and financial policies."

"What Europe needs is action!" he noted.