What is "Spain’s dilemma"?

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From the context of the quote, it would seem that the "dilemma" refered to relates to Spain's loss of empire. Spain became heavily dependent on trade (especially gold) from their colonies in the Americas. As Great Britain became a greater naval power, the links to Spain's possessions came under threat.

I'd guess that the dilemma they faced was about investment in their navy. Keeping a large navy up-to-date and ready for sea was (and still is) expensive, both in terms of money and manpower. So expanding their navy to protect their trade would eat into the profits from the American trade and so reduce its value to the economy. The alternative was to keep the navy small and cheap but risk the trade and communications (and, therefore, control of the colonies) in times of war.

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