[[Image:Battle of Lepanto 1571.jpg|thumb|right|300px|Η [[Ναυμαχία της Ναυπάκτου]], που σηματοδότησε το τέλος της [[Οθωμανική Αυτοκρατορία|Οθωμανικής Αυτοκρατορίας]] ως κυρίαρχης ναυτικής δύναμης στη [[Μεσόγειος Θάλασσα|Μεσόγειο]]]]
Η Ειρήνη του Κατώ-Καμπρεσί το 1559 τερμάτισε τον πόλεμο με τη Γαλλία, αφήνοντας την Ισπανία με σημαντικό πλεονέκτημα. Όμως, η κυβέρνηση είχε τεράστιο χρέος και κήρυξε πτώχευση εκείνο το έτος. Οι φιλοδοξίες του Φιλίππου ήταν πέραν των ικανοτήτων της χώρας του να τις πληρώσει, αν και ο άργυρος από το Μεξικό και το Περού κάπως αντιστάθμισαν τα πράγματα. Even so, most of the government's revenues came from taxes and excise duties. The [[Ottoman Empire]] had long menaced the fringes of the Habsburg dominions in Austria and northwest Africa, and in response Ferdinand and Isabella had sent expeditions to North Africa, capturing [[Melilla]] in 1497 and [[Oran]] in 1509. Charles had preferred to combat the Ottomans through a considerably more maritime strategy, hampering Ottoman landings on the Venetian territories in the Eastern Mediterranean. Only in response to raids on the eastern coast of Spain did Charles personally lead attacks against holdings in North Africa (1545). In 1560, the Ottomans inflicted a serious defeat on the Spanish navy off the coast of Tunisia, but in 1565, the Ottoman landing on the strategically vital island of [[Malta]], defended by the [[Knights of St. John]], was defeated.
The death of [[ Suleiman the Magnificent]] the following year and his succession by the less capable [[ Selim the Sot]] emboldened Philip, who resolved to carry the war to the Ottoman homelands. In 1571, a mixed naval expedition of Spanish, Venetian, and papal ships led by Charles' illegitimate son [[Don John of Austria]] annihilated the Ottoman fleet at the [[ Battle of Lepanto (1571)| Battle of Lepanto]], in the largest naval battle fought in European waters since Actium in 31 BC. The victory curbed the Ottoman naval threat against European territory, particularly in the western Mediterranean, and the loss of experienced sailors was to be a major handicap in facing Christian fleets. Yet the Turks succeeded in rebuilding their navy in a year, using it handily to consolidate Ottoman dominance over most the Mediterranean's African coast and eastern islands. Philip lacked the resources to fight both the Netherlands and the Ottoman Empire at the same time, and the stalemate in the Mediterranean continued until Spain agreed to a truce in 1580.