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Spain gained a position of dominance during this time due in large part to the riches that it was able to extract from its colonies in the New World. The huge amounts of silver that were found in Peru and Mexico made Spain rich enough to finance huge militaries.
It's hard for me to evalutate that second statement because it is not clear to me how much Philip did things out of religious fervor and how much from a desire for worldly power. For example, was the Armada sent to England because England was Protestant or because Philip wanted to dominate Europe?
The exploration that accompanied Spain through its Siglo del Oro, or Golden Age, was driven, in large part, through religious zeal and fervor. Exploration in the name of Christianity and the establishment of further religious boundaries was a part of this exploration. The growth and emergence of the Spanish Armada helped to solidify this increase in world power and control. Yet, I would say that the material acquisition which accompanied Spanish control of colonies and exploration would have played a larger role in its position of dominance during the time period. Other European nations had not been able to establish the same level of power and control as Spain had and the drive and attainment for and of material wealth occupied significant importance in this process.
Spain laid claim to the New World first through Columbus and the other explorers that followed. Once gold was discovered, the rush to the Western Hemisphere, much like the rush to California in 1848, brought a huge influx of people. However, Spain, like Portugal, having accepted slavery as part of society, destroyed and enslaved the native populations for mining. Under Hernando Cortez (1485-1547) the Aztec Empire fell and its precious metals removed to Spain. Gold, in particular, kept the Spanish as the dominant world power; Spain's strong alliance with the Church and Pope were further factors in it becoming more autocratic over time. Had Spain been Protestant, it still would have been a world power, because of its stolen gold.
Spain managed to establish a position of dominance in the 16th century because they controlled the trade lines across the Indian Oceans. They had already established valuable trade routes that allowed them to control the import and export of goods.
The Spaniards had also accumulated wealth from their exploits of other formerly uncharted countries. Spain controlled territory from the Americas to the Philippines and the lower countries of France and Spain. The discovery of the Americas in the 1400's had created an excess of wealth and prosperity.
Phillip II's lack of religious tolerance led to a disaster for Spain. His decisions led to the loss of relationships with some of their most powerful allies/partnerships. It was as the Catholics and Protestants battled.
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