1588 to 1598 was a decade of crisis for Spain. Philipís overseas adventures and foreign policy were crippling Spainís economy. The disastrous Spanish Armada had cost 10 million ducats but was only meant to have cost 3.5 million. By 1595, Philip was spending 12 million ducats a year - he spent money as if he had a never ending supply. 25% of his income came from bullion. The rest was raised by loans and taxes.
For all this, Philip had to raise a new tax - called the millones - which was meant to raise 8 million ducats over 6 years. Any new tax would only hit the poor more than they had been hit by taxes already. This tax came in 1596, and its target was immediately raised to 9.3 million ducats. The extra 1.3 million was to be raised by taxing foodstuffs. In 1600, in the reign of Philip III, the tax was raised to 18 million ducats to be collected in 6 years and raised on wine, meat, vinegar and oil. The money had three purposes :
1) to pay for royal guards
2) to pay for the royal household and the upkeep of frontier garrisons
3) any money left over would be used to pay off royal debt
The millones did huge damage to the poor and their cost of living rose markedly. The burden primarily fell on the poor of Castille and their outlay could not last. The tax had to have a negative impact on their life.
In November 1596, the crown was declared bankrupt once again. Payment to lenders only started again after much delay but this showed to outside nations that Spain was no longer a great power.
|"The towns of north Castille were fading into history, their streets still walked by ghosts of a time when Spain basked in the glory that came from abundance of silver and when Castille could still provide financiers of its own." (Elliot)|
Bankruptcy meant an end to Philipís overseas ventures. The Armada fiasco had a huge impact on Spainís morale. It had been seen as a God -blessed crusade against heresy and it had failed. "The psychological consequences of this disaster were shattering to Spain." (Bowles) 1588 is seen as a watershed for Spain. 1500 to 1588 are seen as Spainís glory years (though this could be challenged) but after 1588, Spain was clearly in decline and this was a speedy decline made worse by Philipís financial policies before 1588.
Spainís decline did not suddenly happen after 1588 - the seeds had been well and truly planted before this date. Not all the problems can be blamed on Philip. He inherited a massive debt from his father. However, it can be argued that a more astute king would have adjusted his financial policy accordingly. The war in the Netherlands cost a fortune and was eventually to lose for Spain the lucrative region and ports of what is now Holland. Philipís attempt to stop the Protestant Henry of Navarre becoming king in France failed.
In 1596, Philip had to cut back on royal expenditure and in 1598, he handed over to Albert and the Infanta Isabella Clara, the running of the Low Countries. They remained closely tied to Spain but without the finance to backup Philip. He himself was unable to assist them in the continuing war against the "rebels". Philip ended a war with France in 1598 (the Treaty of Vervins). This was symbolic of Spainís inability to have an effective campaign against a major European nation. Just twenty years after the death of Philip, Spain found it difficult to become an ally in the Thirty Years War even among the Catholic nations fighting in it. Basically her status had fallen so low, that she was not considered worth courting as an ally - though she did fight in the Thirty Years War but with no real success. That Spain was to lose the Netherlands in the reign of Philip III is again indicative of the speed with which Spain fell as a major nation within Europe. Philip II died in 1598. By 1609, the Netherlands were effectively independent of Spanish rule.
For 1590 on, a major change took place in Spainís Atlantic trading. In 1585 and 1595, trading with the Dutch was forbidden by Philip. Therefore the Dutch had to look elsewhere. Ironically the revolt by the Dutch, had not stopped trade between the two fighting nations. Such an occurrence was not unusual at this time.
The Dutch looked to the Caribbean and South America and they seized the island of Araya and disrupted Spanish trade to her colonies. At the same time, the people living in these colonies were being devastated by disease. In 1520, the Spanish could call on 11 million natives to work for them. By 1599, they could call on only 2 million. To compensate for this, the Spanish had to import their own people to work for them - but these people had to be paid and Spanish profits were further eroded as a result of this. Therefore the revenue to Spain had to fall accordingly.
South America also needed less Spanish goods. Peru could provide a good trade in wine, grain and oil; Mexico had a good cloth trade and the Far East was providing South America with luxury goods. Seville still prospered as a port but it exported foreign goods not Spanish ones. Castilleís economy was hit hard at this time and in particular agriculture was greatly affected. These was a mass exodus to the cities where there was considered to be a better prospect of work and housing. Agriculture was labour intensive and this had a major impact on it. There was no mechanisation - so who was to do the work? How would Spain feed itself? Castille had to rely on imported grain which pushed up the cost of living. Those in the Cortes of Castille knew what was happening but could do little about it. An improvement in agriculture would have needed a massive injection of cash which Spain did not have. The law meant that those who could afford to pay tax - the rich - did not have to.
By the end of Philipís reign, people were arguing over who should pay for improvements to the countryís infrastructure. The plains of Urgel needed irrigating. But local merchants who made money from importing grain and then selling it on, sabotaged this as it would have threatened their livelihood. The failure to invest money coupled with municipal rivalry, lead to inertia and a failure to invest in an economy already starved of investment. This crippled Spainís economy and there seemed to be no desire to improve the economy in the long term. Self-interest took over from what was good for Spain.
Foreign writers wrote about Spainís backwardness by 1598 "with people uninterested in matters of scientific and technological concern." (Elliot) One or two rich people could stop an improvement if they felt that they conflicted with their own concerns. "It seems to have been an attitude of mind rather than any technical difficulty which stood in the way of economic advance."
Also at this time, Spain was hit by a terrible tragedy - plague. From 1596 to 1600, the plague wiped out most of Spainís population growth in the C16. This had a crippling impact on her labour market as workers who survived the plague and were fit to work, could demand wage rises as their work was needed. Those that owned the land had to pay. The losers were those who had to buy the goods as the inflationary impact of this was passed onto them. From 1596 to 1599, wages increased by 30%. The price of corn - a staple foodstuff - rose by 250% during the same time. On top of this, there was the millones to pay.
"Castille by 1600 was a country that had suddenly lost its national purpose."
A cloud of fatalism had spread over the country and it was in this environment that Cervantes wrote "Don Quixote". Philip III employed academics to help him with advice after his father had died. But what could be done? Philip III inherited a country in 1598 that was very poor and technically bankrupt and one that had a very low self-esteem. To what extent was this avoidable and to what extent was it Philip IIís fault ?