China and Germany Fire Fiscal Rockets as US Tries to Cut Spending. What Does This Mean for Bitcoin?
Fiscal policy adjustments in China and Germany could calm the cryptocurrency market.
March 5, 2025, 14:42 UTC
Key points:
- China has increased its budget deficit target from 3% to 4% of GDP.
- Germany has announced its intention to allocate billions of euros for infrastructure development.
- Significant spending could ease concerns about fiscal tightening in the US and support risky assets like BTC through currency channels.
Just as anabolic steroids work on bodybuilders, fiscal and monetary stimulus has become a lifeline for markets and economies. For a long time, governments have relied on these financial injections to stimulate markets and their respective economies.
Now, to the delight of BTC and other risk-on asset enthusiasts, China, the world’s second-largest economy, and Germany, a key player in the European Union, have announced new fiscal measures that could help assuage concerns in both crypto and traditional markets about the fallout from the Trump administration’s spending cuts and tariffs.
The National People's Congress kicked off in Beijing today, setting a target of 5% GDP growth by 2025 and raising the budget deficit target to 4% of GDP, up 100 basis points from last year's 2%.
“The increasingly complex and stringent external environment may have a greater impact on China in areas such as trade, science and technology,” Premier Li Qiang said in his speech.
Notably, the new plan emphasizes the importance of stimulating domestic demand and consumption, which has become a top priority in Beijing's long-term strategy that focuses more on consumer growth than investment.
Maintaining the 5% target shows that “policymakers are confident that growth can be stabilised despite more serious external challenges,” ING said.
Meanwhile, Germany this week announced hundreds of billions of euros in defense and infrastructure investments, moving away from its famous fiscal austerity.
“A radical turnaround in fiscal policy is likely to support Germany's struggling economy. Increased defense spending could create a cyclical boost, and the proposed infrastructure package could provide significant growth potential in the long term,” Bloomberg economists said.
Asian and European stock markets rose this morning, welcoming new fiscal measures from China and Germany. Bitcoin also rose nearly 3% to $90,000, holding its 200-day moving average on Tuesday.
Moreover, in addition to the possible easing of fiscal policy in the US, plans from China and Germany could have a noticeable impact through currency channels, putting pressure on the dollar.
When a country increases its borrowing, it usually leads to an increase in the supply of bonds, which puts downward pressure on their prices and increases yields. This, in turn, makes the national currency more attractive.
It’s already happening. German 10-year bond yields have risen 36 basis points to 2.73% since February 25, hitting their highest since November 2023, according to data from TradingView. That has pushed the spread between US and German 10-year government bond yields down to 1.49%, weighing on the dollar and hitting its lowest since September, down significantly from a peak of 2.31% in December.
The narrowing yield spread helped push up EUR/USD, the most liquid currency pair, triggering a sell-off in dollars and sending the dollar index below 105.00 for the first time since November.
A weakening US dollar, the world's reserve currency, tends to ease financial conditions around the world, which contributes to increased risk sentiment in financial markets.
