He appointed the Duke of Alva to take care of the job. The Duke's methods however were those of a bull in a China shop, to such an extent that even the King's Spanish (and Catholic) counselors warned the King that the Duke's actions were totally counterproductive. Arresting and beheading the moderate, Catholic and largely pro-Spanish Counts Egmont and Horne for one, alienated many moderate and Catholic Dutchmen from the Spanish cause.
Introducing new and much-resented taxes that rode roughshod over Dutch cities' rights - that had earlier been confirmed by King Philip - brought many Dutch cities over to the side of the rebels. Basically, Alva started out in a Dutch province that was quiet, largely loyal to King Philip and overwhelmingly Catholic. Five years later at the time of his dismissal, large parts of Holland and today's Belgium - including most of the larger cities - had become rebel country under the rule of an ever-growing Calvinist minority.
King Philip, who had at first strongly supported the Duke of Alva, finally was forced to conclude that the Duke's methods were indeed just fanning the flames of rebellion and replaced him with a much more moderate Governor, Don Luis de Requesens. Requesens tried the carrot-and-stick method and abolished the hated new taxes, but only managed to get some grip on the firmly Catholic southern provinces (today's Belgium) that looked askance at the Calvinists' quickly rising prominence anyway.
Later Spanish Governors - especially the long-serving Duke of Parma - tried military means to subdue the rebel provinces, mostly in the form of besieging the major cities. This ultimately proved ineffective and cities that had been taken were later mostly re-taken by the Dutch. The military operations meanwhile did nothing to endear the Spanish to the Dutch, and the Calvinists, originally a small minority, used the state of war to take hold of the rebellion's leadership. This, and the success of the rebellion, quickly led to a 'join the leader / join the winner'-mentality that brought about a lot of conversions to Calvinism.
By 1609 and after some 30 years of fighting, the Dutch Republic had become de facto independent as a Calvinist nation. Dutch Catholics were 'tolerated' as long as they kept their religious practices within the confines of their homes. All existing churches had been converted to Protestant churches. In the Treaty of Westphalia of 1648, Spain formally recognized Dutch independence as a Protestant, sovereign State
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The cities in The Netherlands claimed that these taxes were a breach of the ancient rights and charters given to them. In particular the introduction of what we would now call a VAT of 10% on all sales and commercial transactions roused much resentment. When Philip II made the mistake of sending in the Duke of Alba to enforce the taxes and put an end to Calvinist heresy while he was around - which he did with all the subtlety and diplomacy of a bull in a china shop - the Netherlands rose in revolt. Within about 30 years, The Netherlands were de facto independent from Spain.
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Traditionally, it's told the Netherlands revolted because of religion. In the 16th century the Protestant Netherlands were part of Catholic Spain. Another view is that the Dutch (nobles) became Protestant so they could revolt, and that they actually had economic motives for the revolt.
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