Government coffers open as jobs vanish

By Emily Kaiser

WASHINGTON (Reuters) - From the 200 jobs cut at Air New Zealand to the 52,000 heading out the door at Citigroup, unemployment is on the rise around the world, straining government efforts to corral the credit crisis.

Even as credit markets show signs of slowly returning to working order, the real economy is fading fast and looks likely to deteriorate over the coming months.

Governments that were reluctant to spend public money to salvage banks will face growing pressure to act now that unemployment lines are lengthening. Coffers will be depleted as public spending increases while tax receipts drop.

Figures due next week are expected to show unemployment inching up in the euro zone and Japan, while Britain's annual pre-budget report may include a stimulus package equal to 1 percent of the country's gross domestic product.

In the past week alone, the list of companies announcing job cuts included Citigroup Inc (C.N), auto maker PSA Peugeot-Citroen (PEUP.PA), engine maker Rolls-Royce (RR.L), drug company AstraZeneca (AZN.L), Air New Zealand (AIR.NZ), mining company Freeport-McMoRan Copper & Gold (FCX.N) and soft drink bottler Pepsi Bottling Group (PBG.N).

It is symptomatic of how the financial market upheaval has infected the broader economy, crushing consumer spending and pushing businesses in virtually every sector to pare payrolls. That in turn threatens to deepen credit losses at financial firms as unemployment drives up consumer credit defaults.

In the United States, a weekly gauge of new claims for unemployment benefits stands at a 16-year high, and economists think it will worsen in the coming months. Goldman Sachs expects the U.S. unemployment rate to reach 9 percent by the end of next year, up from the current level of 6.5 percent.

"The rapid deterioration in the labor market will ratchet up the pressure on government policy-makers -- and particularly the incoming Obama administration -- to engage in aggressive fiscal stimulus and other measures to stabilize the economy," said Goldman Sachs economist Andrew Tilton.

OPENING THE VAULT

President-elect Barack Obama has said that a stimulus package is a top priority, and if Congress does not approve one before he takes office in January, "it will be the first thing I get done as president of the United States."

Obama was expected to name his economic team on Monday, and reports on Friday that New York Federal Reserve Bank President Timothy Geithner would be Treasury secretary sent U.S. stock indexes sharply higher.

Analysts expect $300 billion is additional spending, with part of it earmarked for increased unemployment benefits.

Ramping up fiscal spending was one of the agreements hammered out when the Group of 20 developed and emerging economies gathered in Washington earlier this month. As labor markets weaken, government spending may take on greater urgency because politicians are wary of appearing to stand idly by while thousands of jobs are lost.

U.S. auto makers used the specter of millions of lost jobs to make their case for a $25 billion bailout, which they may get in early December if Congress and the White House can reach an agreement on how to structure it.

In Britain, public sector net debt has already hit its highest running total since records began in 1946, and finances are expected to deteriorate further as a weakening economy drives down tax receipts and raises welfare payments.