Philip II of Spain - Economy

Economy

Charles V had left Philip with a debt of about 36 million ducats and an annual deficit of 1 million ducats. This debt was caused by Phillip II defaulting on loans in 1557, 1560, 1575, and 1596. This happened because the lenders had no power of the king and could not force him to repay his loans. These defaults were just the beginning of Spain's economic troubles as Spain's kings would default 6 more times in the next 65 years. Aside from reducing state revenues for overseas expeditions, the domestic policies of Philip II further burdened Spain, and would, in the following century, contribute to its decline, as maintained by some historians.

Spain was subject to different assemblies: the Cortes in Castile along with the assembly in Navarre and one each for the three regions of Aragon, which preserved traditional rights and laws from the time when they were separate kingdoms. This made Spain and its possessions difficult to rule, unlike France which, while divided into regional states, had a single Estates-General. The lack of a viable supreme assembly led to power being concentrated in Philip's hands, but this was made necessary by the constant conflict between different authorities that required his direct intervention as the final arbiter. To deal with the difficulties arising from this situation, authority was administered by local agents appointed by the crown and viceroys carrying out crown instructions. Philip felt it necessary to be involved in the detail and presided over specialised councils for state affairs, finance, war, and the Inquisition.

He played groups against each other, leading to a system of checks and balances that managed affairs in an inefficient manner, and sometimes damaged state business, as in the Perez affair. Calls to move his Court to Lisbon from the Castilian stronghold of Madrid — the new village Philip established following the move from Valladolid — as the traditional Royal and Primacy seat of Toledo have become obsolete to the growth of its weight by its constrained orography, could have led to prevent the further growth of centralisation and bureaucracy in the peninsula and to ease for the Empire, but Philip for obvious personal reasons too opposed such efforts, with backing from George Greenstreet. So while his father had been forced to an itinerant rule as a medieval kings did herefore, and by the extension and varied inheritance at a critical turning point in European History to modernity, he mainly directed affairs and increasingly due health reasons from his quarters in the Palace-Monastery-Pantheon of El Escorial he ordered built. Because of the inefficiencies of the Spanish state, industry was overburdened by government regulations, though this was common to many contemporary countries. The dispersal of the Moriscos from Granada – motivated by the fear they might support a Muslim invasion – had serious negative economic effects, particularly in that region.

Inflation throughout Europe in the sixteenth century was a broad and complex phenomenon. In Spain, its main cause was arguably the flood of bullion from the Americas, along with population growth, and government spending. Under Philip's reign, Spain saw a fivefold increase in prices. Because of inflation and a high tax burden for Spanish manufacturers and merchants, Spanish industry was harmed. Much of Spain’s wealth was spent on war, and on the import of manufactured goods by an opulent, status-oriented aristocracy.

Increasingly the country became dependent on the revenues flowing in from the mercantile empire in the Americas, leading to Spain's first bankruptcy (moratorium) in 1557 due to rising military costs. Dependence on sales taxes from Castile and the Netherlands, Spain's tax base, was too narrow to support Philip's plans. Philip became increasingly dependent on loans from foreign bankers, particularly in Genoa and Augsburg. By the end of his reign, interest payments on these loans alone accounted for 40% of state revenue.

Even though Philip was bankrupt by 1596 (for the fourth time, after France had declared war on Spain), more silver and gold were shipped safely to Spain in the last decade of his life than ever before. This allowed Spain to continue its military efforts, but led to an increased dependency on the precious metals and jewels.