Are you sure you have the latest version of P&M? I believe in my version, Granada is a playable faction. ~
Anyways, for troops:
Ballesteros are superior to arbalesters. They function nicely to decimate troops at a distance, and are capable flankers as well.
I believe Rondeleros are capable enough as early foot sloggers, but they will perish utterly against men at arms and lancers.
A combination of Rondeleros, Ballesteros, and Celadas(light cavalry, but irresistable charge can shatter units who've been softened by Ballesteros)should suffice very nicely for the time being.
One more thing to keep in mind: the tercio upgrades are built, much like a building. They require a variety of basic military buildings, although they are not officially listed. I remember the one that really buggered me for a while was the horse farmer-- the tercio requires that to be "built". Also, make sure to build gunsmisths- you need them for both the gun upgrade lines, but also for the Tercio, which is a whole other deal entirely.
Piquero make good foot sloggers after Rodeloros.
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