Did you use the v button (I think that's the key) to see the intact sea lines? Because the channel line seems to be broken, perhaps from another faction than Denmark. Ship contact to Spain but streching by land through France was too much.
The loyalty drop is nothing more than that the "distance to king" factor is getting more important. For example Switzerland is usually getting unstable without spies simply because they're so far inland by province counting. That means that 3/4 of your empire might suddenly rebel because of one disrupting boat.
England should not come back, if they stayed dead for more than a generation the potential royal heirs should have died out. The game chooses royal heir that didn't had came to age when the faction was wiped out to lead the re-emergence, from what I understand.
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