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Spain

In 1700, Spain remained a great power in terms of territory control; recent research moreover shows that imports of bullion from the Americas reached their highest level between 1670 and 1700. However, this concealed major structural weaknesses; the vast majority of these imports were used to fund debt or pay foreign merchants. When the new Bourbon administration took over in 1701, they found the empire bankrupt and effectively defenceless, with fewer than 15,000 troops in Spain itself and a navy consisting of 20 ships in total.

Almost constant warfare during the 17th century made the economy subject to long periods of low productivity and depression, and largely reliant upon others for its prosperity. In many ways, the continued existence of the empire was not due to Spanish strength but to maintain a balance between the powers competing for a share of its markets. Despite fighting a series of wars against Spain from 1667 to 1697, France was also its most significant economic partner, supplying labour and controlling a large proportion of its foreign trade. This consideration was an important factor in the decision to name Philip his heir. Its dependence on others was illustrated in 1703; despite the presence of an invading Allied army, the French ambassador urged Louis to allow Dutch and English merchants to purchase wool from Spanish farmers, "otherwise the flocks cannot be maintained".

Enacting political or economic reform was extremely complex since Habsburg Spain was a personal union between the Crowns of Castile and Aragon, each with very different political cultures. Most of Philip's support came from the Castilian elite. The Spanish Netherlands had been governed by prince-elector Max Emanuel of Bavaria since 1692, while links with Italy, traditionally the major source of Spanish recruits and funding, had been weakened by decades of neglect and heavy taxation. It was widely, if reluctantly, accepted in Madrid that preserving an independent Spanish Empire required comprehensive reforms, including the elimination of the privileges or Fueros held by the Aragonese states. It was no coincidence Archduke Charles had strong support in areas that were part of the Crown of Aragon, including Catalonia and Valencia.