Anti-fragmentation tool could be revealed next week.

The ECB faces three tricky questions when it comes to its new tool.

The ECB is expected to announce a new anti-fragmentation tool soon. To convince markets that it will be enough, it needs to answer three tricky questions: how to implement, when to implement, and what conditions will it attach to its use?

How and when to implement aren’t easy questions.

Program size and target maturities are important. But the key question is how to offset the impact on the overall monetary policy stance. Deciding when to step in will be tricky in real-time. Revealing too much about that could invite a challenge from investors.

Conditionality gets at the core of the tension between hawks and doves.

The core issue is to what extent conditions will be placed on any new program, since strong conditions will reduce the credibility of the ECB’s commitment to close spreads. With inflation at 8%, agreement may be hard to come by.