Speaking for the first time at a G20 summit, Mr Lee told world leaders that festering issues will affect the global economy.
These include developments in Greece and the subsequent market volatility reflecting fundamental underlying problems.
He believes there is a risk of recession in the largest segment of the world's economy in the coming year.
There's also the real danger of a prolonged stagnation and higher unemployment.
As such, there's a need to consider more measures and Europeans must decide what to do.
Mr Lee said the situation is serious and volatile. That's because the scale of the problem is much than what happened to the financial crisis in the United States in 2008.
In the EU, there's a more complex decision-making process. And the risk of a global contagion is higher and can happen suddenly and unpredictably.
On the bright side, Mr Lee noted the sense of optimism among visitors to the G20 meeting.
While Asia is still growing and its fundamentals are robust, it's far from being de-coupled from Europe and the US because of trade and investments.
Mr Lee said growth is the fundamental part of the cure to tackle banking and debt problems.
So countries need to work on a clear plan for growth. And the sustainable way is creating jobs.
There's also a need for structural reforms to raise long term growth potential.
Mr Lee said emerging economies can contribute to global demand. And he hopes to see more investments in infrastructure and raising growth potential by increasing Foreign Direct Investments and increasing competition.
He also hopes to see increased flexibility in exchange rates to help restructure and upgrade economies.
Mr Lee concluded by saying political leadership is critical in solving economic problems and help people understand the difficult period they're in.
He said the solutions may not be popular but there's a need to generate confidence that things are moving in the right direction.
- CNA/ac/de
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