NextGenerationEU (NGEU) has been widely interpreted as a transformative moment in EU governance, yet its domestic-level consequences remain comparatively understudied. This article examines how the Recovery and Resilience Facility (RRF) has interacted with national institutional structures in Italy and Spain -the two largest recipients of RRF funds- asking what forms of institutional change this interaction has produced.

Drawing on theories of gradual institutional change and Europeanisation, the article argues that the RRF primarily catalysed and reoriented pre-existing institutional trajectories rather than fundamentally reshaping domestic governance. Based on a comparative case study combining document analysis and investment priority tracking, the findings reveal a shared logic of executive centralisation alongside path-dependent investment strategies — but with significant cross-national variation. In Italy, the RRF deepened pre-existing hierarchical governance arrangements, further concentrating executive control under the Meloni government, while investment concentrated on traditional physical infrastructure. Spain, by contrast, leveraged its more decentralised institutional setting and a progressive governing coalition to pursue a more ambitious green re-industrialisation strategy, aligning EU funds with new sectoral coalitions. These divergent trajectories, unfolding in a largely depoliticised manner, are explained by the interaction between pre-existing institutional structures and the political-economic projects of incumbent governments.