I'm reading a book on Imperial Spain and it says that in 1585 Cardinal Granvelle advised King Phillip II to move the Spanish government from Madrid to Lisbon. In Granvelle's reasoning, a government situated in Lisbon would be able to oversee its colonies and the struggle for Spanish domination of the Atlantic, since the faster maritime communications would not have to take the extra journey to Madrid. It would also, in Granvelle's mind, calm the uneasiness that many of the aristocracy in the Spanish Empire had about the domination of the monarchy by Castilians. Moving the court from Castile to Portugal would certainly make the Portuguese less likely to rise up.
However, I'm not so sure this would appease the Aragonese kingdoms or the Italians as much since Lisbon would show that the court is moving its focus to the Atlantic and American holdings and would likely neglect the needs of the Mediterranean parts of the Spanish Empire. There's also the question of whether monarchs after Phillip II would keep the government in Lisbon or move it back to Madrid.
Would Spain be a more successful power during the 17th century with the government in Lisbon? Or might we see a more successful Catalan rebellion and further advancement of the Turks as Spain turns her back on the Mediterranean?