LONDON (Dow Jones)--Goldman Sachs Group Inc. (GS) warned Tuesday in a note to clients that a leadership crisis in Italy may pose serious risks to its positive euro view. However the bank stuck to its 12-month forecast of $1.50 for the euro against the dollar. In its pessimistic scenario, "continued reluctance by the Italian authorities to tackle structural weaknesses, combined with troubling public relations right up the highest government levels, may further undermine market confidence in the Italian bond market," said the bank's chief currency strategist Thomas Stolper. However, Goldman's base case assumes a more pro-active structural reform approach by Italy. "Italy only needs to demonstrate that additional structural reforms will help bring the debt levels down into sustainable territory even if growth continues to slow," Stolper said. "We still think the Italian policymakers will eventually live up to the challenge and start focusing on the necessary structural policy changes and improved policy communication," he added. Goldman Sachs stuck to its euro forecasts of $1.40 in three months, $1.45 in six months and $1.50 in 12 months but warned that any further steps in the direction of the worst-case scenario create substantial downside risks to its current euro views and forecasts. The bank said Friday it had been stopped out of a positive bet on the euro, after the common currency closed under $1.35. The euro now trades at $1.3534. - By Jessica Mead, Dow Jones Newswires; 44 20 7842 9256; jessica.mead@dowjones.com

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