I believe Franco was not a fool and realised that the dictatorship has no future. It started eroding even at the time when Franco was alive becuase it was clear that Spain can no longer be isolated by the democratic world after 1945 (Franco's regime was authoritatian and never pushed into a totalitarian one; partially, that is due to Franco who never liked the totalitarian wings in his party (maybe because he feared to lose his influence to their leaders and probably because deep in heart he stayed monarchist ) ). Despite his numerous faults (like any dictator), his correct behaviour even prior to that date (during the WW2) and his relative lack of extremism (compared to other dictators) showed he was sensible man, not a fanatic. In addition, it may seem surprising but deep in heart he seemed to stay a monarchist and he was determined to restore the monarchy in Spain. This is part of the reason he tried to associate the young heir (and current King) to the rule with the clear idea to make him his heir (and to avoid unnecessary conflicts and violance which often came with the fall of dictatorship - this was the main reason behind his choice, I think). I think he was right to put his trust on institution with high legitimacy amongst the Spanish like the monarchy and in this way to secure that there will be a strong figure in the transition period. I believe in this aspect Juan Karlos replied to all of his expectatuions. The new King encouraged the democratic reforms and once he even stood against a military coup in the 80's which is a good proof for his intentions. I believe the reason Franco chose him was exactly this: there was no future for the disctorships and he needed a man who knew that and is convinced into the democratic development of their countries. For let's make this clear: monarchy is not incompatible with the democratic values and in many cases its authority can stop an authoriarian (or worse, totalitarian leftist or rightist) attempts of certain persons (something that happened in Spain in the 80's; happened in Thailand; and unfortunately failed in Italy because of the incompetence of the Savoy monarch). The fact he chose Juan Carlos showed not that the current King of Spain sympathises the authoriarian rule but that the old dictator just knew there was no future for his eroding regime.
I am not a fan of Franco since he did many things he should not have. Yes, I do not think he was as black as many people use to portray him but no, I dislike any kind of dictatorship.
The role of Juan Karlos: he used the prestige of the monarchy in order to stand behind the democratic reforms. It would be exaggerated to say that he was the one who did the reforms (I have to check in the books for more info, though; it's been long time since I read about it). He simply did the first push. In fact the bulk of the work was done by the politicians who had the main power by free elections. The King simply gave support in case something went very very wrong. Like in the 80's.
P.S. The thoughts on Franco who foresees the downfall of his regime seem to be the most logical for me. I'm a bit sceptic his realistic mind thought that an absolute monarchy was possible nowadays. Of course, there could be more standard point of view, which say the young King simply managed to play his cards well in front of Franco in order to restore the dynasty and to secure the democratic development (vital for the development) of his country
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