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So you're not going to restart from that event, by choosing non-intervention option (possibly accusing the aragonese for being fascist or smth like that)?
 
You can create an Iberian "Taiwan" in the Baleares, giving to you some IC and Manpower.
 
I say let him start on his new AAR.

Face it that he lost. Even if he has those islands it is going to be a boring ride for quite some time.