In 1556, Philip II became ruler of an empire encompassing all of Spain, Sardinia, Sicily, the southern half of the Italian peninsula, and the Netherlands, which then included modern-day Belgium. He also controlled Spain's overseas colonies: Central America, parts of the African coast, and most of South America.
Like his father, Charles V, Philip was an intelligent, committed ruler who surrounded himself with qualified administrators and soldiers. And like his father, he found himself continually short of the funds he needed to sustain his empire. Philip, a devout Catholic king at a time when the Protestant Reformation was challenging the Church at every turn, was often at odds with his subjects, particularly in the Netherlands, the wealthiest and most urbanized region of Europe. Forced to spend huge sums to repress an insurrection that erupted there in 1568 and continued, off and on, until 1648, Philip came to rely more and more on the silver pulled from the mines in the New World to finance his foreign policy.
During Philip's reign, Spain's overseas holdings grew as Spaniards conquered the Philippines and founded the colony of St. Augustine in modern-day Florida. By the 1560s, when treasure from the New World had become vital to Philip, fleets were organized to take goods to the Americas and return with silver from the mines in Mexico and Peru. This silver increased Philip's revenues by at least 20 percent by the 1570s. The King soon made a move to expand his empire closer to home.
When Portugal's King Henry the Cardinal died in 1580, Philip made a claim to the Portuguese throne, reinforcing his case by ordering the Spanish army and navy into the country. (At the time, he was married to King Henry's niece, Maria of Portugal, his first of four wives.) He was declared King Philip I of Portugal, giving him control of Brazil, the only part of South America he did not already possess, along with colonies in Ceylon, Indonesia, and Africa. Most of these colonies were essentially fortified trading centers for spices, silk, and African slaves, and would prove to be expensive to maintain.
Within a few years, Philip's belief that his life's mission was to defend and propagate Catholicism led him into a devastating conflict with England's Queen Elizabeth I, his sister-in-law through his marriage to Queen Mary I. He had several reasons for challenging Elizabeth: she was aiding the Dutch rebels in their revolt against Spain, had refused to bring England back into the Catholic Church, and had turned down Philip's offer of marriage after Mary's death in 1558.
In the mid-1580s, tensions grew between the two countries. Philip embargoed English ships in Spanish ports, while Sir Francis Drake, on Elizabeth's behest, continued to sack the ports, raided the Cape Verde Islands, and attacked Spain's New World ports of Santo Domingo and Cartagena. Philip began assembling a large Armada of ships to invade England. In August 1588, the Spanish fleet reached the English Channel. There, Spain's faulty strategy left the fleet open to English attack while bad weather destroyed one-third of the ships as they tried to retreat. Although Philip later rebuilt his Armada and launched two more attacks against England, both were thwarted by the weather.
During his 40-year rule, Philip paid a heavy price to hold and expand the empire he had inherited from his father, declaring his state bankrupt three different times. Spain, the most powerful country in Europe during Philip's reign, was being undermined to save the empire.