Germany is mulling a fiscal policy U-turn and considering ditching its long cherished balanced budget goal by issuing new debt to finance a costly climate protection package, a senior government official told Reuters on condition of anonymity.

"The challenge now is how to shape such a fundamental shift in fiscal policy without opening the flood gates for the federal budget," said the senior government official with knowledge of the internal discussions in the finance ministry.

"Because once it is clear that new debt is no longer a taboo, everyone raises a hand and wants more money," the official said. That's why Berlin would link and limit any new debt strictly to the climate protection package which Chancellor Angela Merkel's cabinet is expected to seal next month.

A German finance ministry spokesman declined to comment.