Recognizing that he could not invade the island nation, Napoleon tried to isolate Great Britain commercially through an embargo of goods called the 'Continental System' established by the Berlin Decree of 1806 which came fast on the heels of Napoleon's stunning destruction of virtually the entire antiquated Prussian army.
Designed to cripple England, the Continental System failed because the French could not provide the same manufactured goods as Great Britain for even somewhat similar prices, the system ultimately making life just as unbearable in many continental countries as it had become in England, and also because Napoleon underestimated the degree to which his subject nations would resist enforcement of the embargo.
Thus, and despite official prohibitions, massive state intervention, and the expansion of the country to include prosperous areas in Belgium, Germany, and Italy, Napoleon simply could not either bring rapidly industrializing England to its knees, despite doing considerable economic damage which nearly bankrupted the British crown, and he couldn't stop the enormously lucrative and popular black market in English goods which sprang up despite his best efforts found their way onto the continent.
Even Louis Bonaparte, while sitting on the throne in Amsterdam where Napoleon put him, recognized the utter futility of an embargo that was hurting his own people and all but officially refused to comply, a meaningful and compassionate act of defiance which eventually cost him his throne and exile. Napoleon was never one to play games, even when he was dead wrong in his calculations.
England was not a self-sufficient country and depended on both its import of raw materials and its continental markets for its existence. Napoleon hoped that by cutting off these markets he could ruin the British economy and force the British to submit to his will. Additionally, Napoleon had in mind a secondary goal of forcing the continental states into a total economic dependence on the industrial exports of France, which would give him an economical dominance to match his military dominance of Europe. The Berlin decrees of 21 November 1806 and Milan decrees of 17 December 1807 proclaimed a blockade: neutrals and French allies were not to trade with the British.
Economic warfare had been carried on before 1806, but the Continental System itself was initiated by the Berlin Decree, which claimed that the British blockade of purely commercial ports was contrary to international law. It was extended by the Warsaw Decree (1807), the Milan Decree (1807) and the Fontainebleau Decree (1810), which forbade trade with Great Britain on the part of France, her allies, and neutrals.
Napoleon expected that the unfavorable trade balance and loss of precious metals would destroy England's credit, break the Bank of England, and ruin English industry. Prime Minister William Pitt's emphasis on preserving his nation's commercial and colonial interests, Great Britain retaliated by the Orders in Council which forbade nearly all trade between England and any nation obeying the Berlin Decree.
One of the most dramatic results of the commercial warfare was the English bombardment of neutral Copenhagen (1807) and the seizure of the Danish fleet. The trade restrictions of the continental system led to a decline of the significance of Amsterdam; it never regained its former prominence. England had control of the sea, and large-scale smuggling thrived all along the European coast (with U.S. privateers taking a large part in the illegal trade). Napoleon himself issued special licenses for trade bringing in colonial goods on the payment of duties.
Napoleon's Russian campaign of 1812 was brought on by Russia's refusal to conform to the decrees, and the war between England and the United States, the War of 1812, was to some extent a result of the economic warfare. But so difficult was the enforcement of the system that in his effort to impose it on Russia, Napoleon had to violate it in France. Whether the continental system delayed the introduction of the Industrial Revolution to France is much debated, though it did foster the development of beet sugar manufacture and machine spinning of textiles.
Between 1806 and 1810, Napoleon reached the zenith of his power in Europe. He made himself king of a newly amalgamated Italy in 1805, which brought together extensive territories in northern and central Italy. He installed his brother Joseph as King of Naples in 1806 before moving him to the kingdom of Spain in 1808. He made his brother Louis Bonaparte the new King of the Netherlands in 1806. In 1807 he named his brother Jerome King of Westphalia. He could put his relatives on the thrones of Europe because he could defeat all his rivals via a straightforward land invasion except one, Great Britain.
In the long run, the failure of this continental blockade spelled the beginning of the end. To make the embargo on trade more encompassing, Napoleon invaded Portugal and then occupied Spain in 1808. The Spanish rebelled and with financial and military support from Britain, they tied Napoleon's armies down in a long guerrilla war. Even Napoleon's personal intervention with 150,000 additional troops could not solidify the French takeover. The French continued to win many battles but were gradually losing the war in Spain and Portugal.
Hoping to stabilize his relations with Czar Alexander and use him as a balancing act against renewed Austrian hostility, on 27 September 1808 Napoleon convened the Congress of Erfurt in Prussia. No other diplomatic engagement of the period more readily displayed both the Emperor's power and vulnerability than did the meetings at Erfurt.
While the sovereigns of Europe gathered to pay lip service to Napoleon, it was obvious that Alexander was no longer a pawn living in awe of the Napoleon's aura. Eylau had opened eyes to the realization that there were indeed cracks in the Imperial armor. The best the Emperor got from Russia at Erfurt was the flat-out avoidance of a break. It was clear that Alexander had awakened finally to the realization that if he played the game just right, it was he and not Napoleon who was holding the trump card.
By 1813, British, Portuguese, and Spanish troops had driven the French back across the Pyrenees and off the Iberian peninsula altogether. And by the time Napoleon returned to Paris following the Russian disaster, he had virtually no allies at all, none that he could trust and that could help him get back in control of his own destiny, anyway.
The Berlin Decree
Napoleon, 21 November 1806'