The Continental System attempted to strange Britain's economy but ended up hurting France more. Napoleon came very close to incorporating all of Europe into the system: by the 1807 Treaty of Tilsit, Russia and Prussia agreed to cooperate. In fact, Russia, Prussia, and Austria all officially declared war on Britain during this period.
Napoleon next tried to force Denmark and Portugal to join the system. Since Denmark contained ports crucial to British trade, the British Navy bombarded Copenhagen and attacked the Danish fleet in hopes of keeping this port open. British belligerence against the Danes, however, only made them more willing to cooperate with Napoleon.
Portugal, on the other hand, refused adamantly to join the Continental System. In 1807, Napoleon invaded the small Iberian country, forcing it to comply. The Portuguese royal family fled to Brazil, and the Portuguese people were discontented under Napoleonic domination.
Portugal's larger neighbor, Spain, had until 1807 avoided Napoleon's control. Though declining in stature as a world power, the Spanish remained proud. They remembered their great tradition of explorers, colonies, and visionary rulers like Ferdinand and Isabella. They had a rich culture and history, and the Napoleonic era was the time of several great Spanish painters such as Goya. When Napoleon manipulated the Bourbon king of Spain off the throne and installed his brother Joseph as king, an anti-French guerilla war broke out, called the Peninsular War. Britain, seizing the opportunity to place a few barbs in France's side, sent an army under the Duke of Wellington to aid the guerillas, called peninsulars. The fighting in Spain was bloody and protracted, and diverted precious French resources Napoleon would need elsewhere. Furthermore, the Peninsular War actually inflicted some defeats on the French Army, proving that they could be beaten, raising hopes among potential resistance movements in Germany and in Austria.
In September 1808, Napoleon held a meeting of all of his puppet kingdoms at Erfurt, Saxony. His main goal was to try and impress Alexander I, also at Erfurt, with the power and grandeur of the Napoleonic Empire. Napoleon was in the process of creating a Grand Duchy of Warsaw, which he knew would upset Alexander.
In April 1809, Austria rebelled against Napoleonic rule, announcing a "War of Liberation". No one joined them: the German princes were still fighting each other to impress Napoleon, and were not about to fight him. Fighting alone, renegade Austria was defeated at the Battle of Wagram. In October of that year, the Austrians made peace with the French again. Napoleon took some of northern Austria and added it to his new project, the creation of a Grand Duchy of Warsaw.
The Continental System represented an attempt at economic warfare. However, the system ended up hurting Napoleon more than it hurt Britain. The British blockade of Europe badly slowed the internal European economy; the ill-sighted imposition of tariffs from country-to-country within Europe also hurt the volume of European trade. Napoleon himself put tariffs on goods coming into France, but didn't let anyone in his empire put tariffs on goods coming from France. Although this did cause an increase in French manufacturing and industry, it also caused a lot of resentment throughout the Empire. Since land transport was so slow, Eastern Europe had major problems getting goods from Western Europe. The continental system also led to the Peninsular War, which sapped French strength, morale, and prestige. In the end, the Continental System damaged France, but not Britain. Britain compensated for the loss of European trade by stepping up its volume of trade with its colonies. Britain's Gross National Product (GNP, a measure of national wealth) actually continued to increase every year under Napoleon's economic sanctions, although the Continental System may have slowed down the rate of growth of Britain's economy.
Why, when many other European countries relished the opportunity to hurt Britain, were the Portuguese so opposed to joining the Continental System? Tiny Portugal was pro-British because it depended on its colonies. Because of Britain's dominance of the seas, Portugal knew that continuing trade relations with its colonies depended on good relations with Britain.
The tactics Napoleon used to install his brother on the throne of Spain were seen as particularly underhanded by much of the Spanish population, resulting in the bloody Peninsular War. Before 1807, the situation in Spain was as follows. The wife of the bumbling Bourbon king of Spain, Charles IV, was having an affair with a member of the court named Manuel de Godoy. Godoy was gaining power, and Ferdinand, the heir to the Spanish throne (known as the Infante), tried to get rid of Godoy. Godoy's loyal followers imprisoned Ferdinand, when suddenly the French army started approaching under the leadership of Murat. Godoy released Ferdinand, the frightened Charles IV abdicated the throne, and, on March 23, 1807, Murat entered Madrid, refusing to recognize Ferdinand as king. Charles then tried to undo his abdication, and chaos broke lose in Spain as Ferdinand's camp fought Godoy's camp. Napoleon convinced Ferdinand to give the throne back to his father, and convinced Charles to abdicate. Then he gave the crown to his brother Joseph Bonaparte, and attempted to impose the Continental System on Spain. Murat became the King of Naples, Joseph's old kingdom, but remained personally insulted that Napoleon didn't give him the Spanish crown.
At Erfurt, Talleyrand secretly told Alexander that Napoleon's empire was over-extended, and that he should simply bide his time until the collapse. Talleyrand's action may be seen as traitorous to Napoleon, and he was probably trying to play both sides, ensuring that he would have a safe place if Napoleonic France where to fall. Or, perhaps Talleyrand saw some need for balance between the European powers and was trying to remedy the extremely unbalanced situation that Napoleon had caused, which resulted in constant wars.
Fairly remarkably, Emperor Francis II did not collapse even after the Battle of Wagram, in which Austria yet again met with embarrassing defeat. Francis' resilience demonstrates the great strength and staying power of the Hapsburg rulers of Austria. Still the loss at Wagram led to some change: Clemens von Metternich took over Austrian foreign affairs. Before 1809, Metternich had been the Austrian ambassador to France, so he was well acquainted with the French foreign minister, Talleyrand. Although France had just beaten Austria, the new foreign minister of Austria pursued an improved relationship with France, believing that Russia was Austria's true enemy over the long run.