At a joint press conference, Krishna said a crisis in the European banking system, now on the horizon, can choke trade and finance and in the process global economic growth, and called for substantially expanding the resource base of multilateral development banks.
Moody's Investors Service has downgraded the ratings of world's 15 biggest banks, including Bank of America, J P Morgan, Goldman Sachs, Citigroup and Deutsche Bank, saying that they have significant exposure to volatility and capital market risks.
"The sovereign debt crisis and the banking crisis, now on the horizon, has grave implications not only for the European economy, but also global economy," Krishna said. "A crisis in European banking system can choke trade, finance and economic growth not just in the euro-zone but in the world at large."
Europe is of particular concern as it accounts for a significant share of the global economy and is also India's major trade and investment partner, he said.
Krishna said there is a need to substantially expand the resource base of multilateral development banks so that they have the firepower to help developing countries pursue their developmental goals.
Westerwelle told Krishna that "...For us there is no doubt that we have to work hard for the future of Europe and for the stability of the European currency".
"But I am optimistic and I am full of confidence that we will manage the debt crisis. It's not a euro crisis. It's a debt crisis which morphed into a crisis of confidence," he added. (MORE)
