However, as I see, the long term consequences were enormous: the deepening of a hidalgo culture and the development of the Inquisition was an important constraint to scientific and economic progress.
I've yet to see the Inquisitorial impact on these grounds. While the societal impact was certainly important (but most definitely tended to lower, even during the XVIIth century), I've still to remember occurence of what was basically an heresy-hunting institution (and being quite serious about it, disregarding matters that didn't explicitly included it) on matters of technological and economical nature.
In a nutshell, Spanish Siglo de Oro is known for the development of Literature, Painting, Architecture, etc, whereas the Dutch Gouden Eeuw included an undeniable progress to technology and human sciences (Spinoza, Grotius, Descartes, Huygens, etc.).
Indeed. Is known, because culturally, both tended to focus on different matters.
But it should be noted that XVI/XVIIth Spain relied heavily on Italian and German cultural/technical structures, and that these (would it be only because Italy was included within Spanish sphere of influence and the close Habsburg relations) should be taken in account as well.
As for human sciences, the School of Salamanca (for economics, but as well moralism) have essentially the flaw of being less known due being set in a country deemed "backwards" than being really inferior.
The influence of Vesalio on Spanish medicine and biology was quite noticeable, and these disciplines hardly minor, with Amusco as an example.
Or the engineering development (partially tied up with the renewed exploitations of mines in the peninsula and in Americas)
It's interesting to notice that most of the scientific and technical occurrences there happened during the reign of Felipe's II, whom action in these matters is often bluntly ignored to fit some sort of "black legend" remake : is Beaumont's obscurity is more due to the insignificance of his steam powered water pump, with Hiero's toy being more technically relevant? Or couldn't we see, at least partially, a certain bias from technological historians?
That his successors, notably, were content about living on past acquisitions and developments, certainly harmed the whole scientific/societal development but if it was really a problem of hidalgo culture, it should have happened at least one century before.
It may be wiser to look at the reverse : after Felipe II, Spain is loosing its edge and dominance, and being in deep denial, Spanish elites simply let themselves slide. Basically, because Spain was declining, its elites stopped to be dynamics, which only deepened the decline.
Having a Spain more victorious in Europe would certainly prevent at least partially this attitude to me.
Max Weber indicated works ethics as the main explanation for this shift of power from the Mediterranean Catholic powers to the Protestant Northern nations.
It was exceedingly debated, mostly considering the predominance of same works ethics in late Middle-Ages Netherlands, Catalonia or Italy.
A good POD would be to have a urban élite dominating the country, that is to say, we need to make Lisbon the centre of the empire.
I would point that such elite existed in Spain, namely in coastal Aragon, since the Middle-Ages.
While its decline was partially due to the late independent Aragon situation, it knew a certain growth with the unification both from Mediterranean trade (which could be at least partially maintained with a more important anti-Ottoman coalition) and local production. In the XVIth century, its wealth was comparable to North Italy, Portugal and second only in Spain to Flanders.
But the economic crisis of the late XVIth century, the policies of Charles V and Felipe II, and the growing importance of Americas certainly harmed its position. Tough, it was still salvageable, at the likeness of Italian city-states that while declining, remained dominant in Mediterranean trade up to the XVIIth century.
A strong enough Spain would have little trouble maintaining Catalan maritime dominance, in my opinion.
A Portuguese-Castillan Union would "possibly" avoid the expulsion of the minorities
Actually, it would make it even more likely, especially for Moriscos. They were particularly present in Valencian country where they represented an economically important taskforce for the agricultural and planter part of the Valencian economy.
Their expulsion there was certainly more harming than it was in other regions of Spain.
Which bring me to the above point : a more reliant Spain on Catalonia and Valencian *could* (we're talking of a cultural feature there, so let's not be hasty) at least adopt a more gradual expulsion model would it be only because of the increased political importance of who depended on them.
Finally, to avoid overextension, avoid Italy, the Netherlands, Germany, the Ottomans, etc.
Even without Habsburgs, these problems would remain, especially in Mediterranean basin. French or Ottoman takeover there would mean loosing necessary trade partners and strategically important regions.
As for Netherlands, having them is at the contrary what could help Spain to compensate a lesser holding in Americas.
Rather than not intervening, which would be at least to prevent the big blue blob and the gigantic green gathering to be able to take on a more wealthy Spain. Would it be only geopolitically, isolation would be a very bad idea.
