Philip II inherited a massive debt of 36 million ducats when he became king of Spain. He also inherited an empire with differing currencies, taxes, and trade regulations across provinces, as well as an ongoing costly war. Philip faced continuous drains on his resources from maintaining the sprawling empire and conflicts like the Dutch Revolt. He took on further debt to fund wars, but was unable to pay it back, worsening the economic problems over time through high interest rates and fewer available loans. A combination of war, debt, taxation issues, and poor fiscal management contributed to the financial difficulties facing Philip's empire.

1. What caused the
Economic and Financial
Problems of this period?

2.  Philip inherited continuous warfare, which was
financially draining and disruptive to trade and
population.
 Inherited 36 million ducats of debt – stood little
chance from the beginning.
 Inherited a taxation system riddled with corruption –
not all the money collected was going to the Spanish
treasury. Self-interested governors and tax collectors.

3.  Currencies, regulations and tariffs differed across
provinces, making consistent taxation impossible.
 Some regions flourished due to trade and position
(those on the west coast closer to the New World),
while others didn‟t. Economic improvement was never
consistent across the Empire.

4.  The Empire was a constant drain on Philip‟s revenue.
 The Dutch Revolt cost 80 million ducats and disrupted
the wool trade – the most important export.
 The Armada cost 10 million ducats.
 The expense grew as Philip‟s reign went on; he‟d
acquired Portugal and also had the Dutch Revolt to deal
with.
 War fuelled inflation.
 The Empire cost a lot, but gained little for Philip.

5.  Provinces were reluctant to surrender their taxes to finance
things so far away: e.g. The revolt in the Netherlands.
 Regional differences made consistent taxation impossible.
 Money from the New World, although a large amount, was
used for war rather than to strengthen the economy.
 Sale of crown land to make immediate money led to a loss of
long-term revenue.
 Raising taxes risked revolt, which would make the situation
worse rather than better.
 Philip tried to raise money to save the economy, but met with
difficulties.

6.  Poor harvests worsened economic situation.
 Bullion went to failing economy instead of being used
to pay off loans.
 Customs duties could be raised, but trade was
reduced by war.
 Foreign affairs and growth of empire hindered
economic development.

7.  Philip borrowed heavily. He was tied to Spanish and
foreign bankers, restricting what he could achieve as
monarch. Refusal or inability to pay back the loans
led to fewer loans being available and higher interest
rates, making the situation worse in the future.

8.  Philip took out many loans, fully aware that he was
unlikely to be able to pay them back.
 He sold crown land, damaging the future financial
situation.
 He was the „Paper King‟ and tried too hard to manage
finances alone, despite the fact that he knew he was
inept: “I have never been able to get this business of
loans and interest into my head” – Philip II.
 He also took the advice of self-interested financiers.