This is a very interesting turning point, since it is what the Catholic Monarchs' had intended to happen.
From the Spanish POV, it's a lot better. First, they could've concentrated in the Mediterranean and France. They'd have three fronts less: Germany, the Netherlands and England.
Second, they could'ce concentrated in becoming an Atlanctic, naval power focused on trade.
Also, part of the Spanish decadence was as a cause of breakup with the northern countries (England, the Netherlands). Adding to the loss of the lucrative commerce of the castilian wool, it's the area of the world where many important economical and technical advances would come to be in the following centuries.
Isabella, Ferdinand and even Charles V never intended to sever ties with this part of the world. If you look at the arrangements they made for their sons, they wanted to ally with Portugal, the Habsburg (who posessed hte Netherlands) and England (Charles advised his son to keep good relations with them, not to mention that he had him married to Mary I).
The whys: It was beneficial to the crown of Aragón to try to isolate France, and to Castile it was advisable to keep Portugal friendly and good relations with the countries they traded with.
I'd add that in Isabella's will she advised to go on conquering in Africa; she neverseems to have thought that the direction to go was land-grabbing in Europe.
It is interesting to think of what dynamics European politics would've had. France might have found it tougher to find allies.