For 10 years Philip IV’s widow, Maria Anna of Austria, acted as regent for Charles II (1665–1700). She allowed her government to be dominated by her confessor, the Austrian Jesuit Johann Eberhard (Juan Everardo) Nithard. It was weakness, rather than strength, that prompted this government not to summon the Cortes any more. But this policy paved the way for the introduction of effective royal absolutism in the 18th century. In 1669 Nithard was overthrown by Juan José de Austria, an illegitimate son of Philip IV, but the regent still managed to keep him out of the central government. In 1677 Juan José led an army against Madrid and made himself Charles II’s principal minister. This first pronunciamiento, or military coup, inaugurated a tradition that was to bear bitter fruit in the political life of Spain and Latin America in the 19th and 20th centuries. Juan José himself planned some promising reforms but died in 1679. Thereafter, the high nobility dominated the government as effectively as it had in the days of Philip III, playing court intrigues, first with the regent and later with the two successive wives of the incapable Charles II. The majority of these aristocrats were self-seeking and incompetent. Some, however—notably Manuel Joaquín Álvarez de Toledo y Portugal, the conde de Oropesa—had considerable ability. They finally restored the coinage in 1680, though not before they had caused another catastrophic deflation. They established a committee for commerce that pursued orthodox mercantilist policies, encouraging trade and industry. They even took the unprecedented step of investigating the Inquisition and recommending a right of appeal to the secular courts.

Even though the woolen industry of Segovia and some other towns expanded and the imports of American silver, now routed through Cadiz rather than Sevilla, recovered at least in some years to about their former levels, a broadly based economic recovery still lay in the future. Until the mid-1680s the Castilian economy declined at such a rate that the French ambassador claimed to see an appalling deterioration between his two visits, in 1668–69 and in 1671–73. In the 1690s the Venetian ambassador characterized the reign of Charles II as “an uninterrupted series of calamities.” The population of Castile declined from about 6.5 million at the end of the 16th century to under 5 million about 1680. Figures for the whole of Spain followed a similar pattern, declining from 8.5 million to about 6.6 million. The reasons for this decline were not so much emigration to the overseas colonies, which averaged 4,000–5,000 per year in the 17th century, as military casualties from all causes, which averaged the frightening figure of 10,000–12,000 a year. More devastating still were the recurrent plagues and, perhaps, the sheer misery of the rural population, who lived on estates that their noble and ecclesiastical owners could not be bothered to manage with even a minimum of efficiency. The shortage of labour, especially skilled labour, and high wages attracted many foreign workers, perhaps as many as 70,000 Frenchmen. Nevertheless, Castilian industries continued to decline. The nadir was reached in the decade 1677–86 with crop failures, earthquakes, an epidemic that sharply reversed a slight upward trend in population dating from about 1650, and, on top of these natural disasters, the government’s deflation of the coinage.