The Spanish Civil War provided Germany many opportunities. One was to support the resistance to communism, which was not only repugnant to Nazism but also to the big democracies. By supporting that side, they were left to meddle in military affairs that might otherwise met a more vigorous resistance from the governments of France and England, who certainly did not want a Soviet backed government at the gateway of the Mediterranean.

Hitler did not believe that total war was inevitable with England or the US. He was confident that England would sue for peace and become a neutral concern after being driven from the continent. He was not alone in that assessment. Hitler was perhaps a little more delusional when he believed that these nations had a bit more in common. Was he to believe that British colonial brutality, or American Manifest destiny and its reduction of Indian populations was fundamentally different from his desire for eastern lands and the expulsion of their occupants?

The second benefit of contributing is the well documented aspect that Spain became a laboratory for German experiments in modern warfare, specifically when it came to air power. Terror bombing had been toyed with during the First World War, but it came into its own in Spain and in Italy’s murderous adventures in Africa. This consequence free method of product development and testing has been a staple of first world “aid” to impoverished nations whose sponsored governments are supported by arms deals. In effect, this support purchased their neutrality.

Here’s where the questioner may be mistaking the value of neutral nations to combatant nations. Switzerland provided a place to stash valuables to the Axis and a refuge for escaped Allies. Spain provided a safe port of call for German and British shipping, and a conflict free southern border to occupied France. Sweden provided iron to Germany, and again provided a buffer to occupied Norway.

Neutral nations are much, much more valuable and dependable than weak allies. In the First World War, both Romania and Italy betrayed German diplomatic advances, after evaluating which side would benefit them the most. Italy played the role of Austria Hungary during the second, where their willful small picture land grabs forced Germany to expend limited resources in Africa, Yugoslavia and Italy itself.

Impoverished Spain could not have provided Germany with enough men or material to make an iota of difference. They most likely would have collapsed under an allied invasion and then would have provided naval and airbases that could have rendered their position in France untenable. It could be easily argued that an Axis aligned Spain could have reduced the wars magnitude of death and despair considerably because of its likelihood of a quick capitulation, giving the allies a more direct route to open the western front much earlier.

So, maintaining Spains neutrality throughout the conflict was one of the few positive outcomes that Germany sought and achieved.

Not to discourage any further discussion, but you may be interested in our FAQ section on the subject, with answers from /u/kieslowskifan, /u/Bernardito, and /u/Georgy_K_Zhukov.

The neutrality of Spain is something that was somewhat of a blurry line, fwiw.

I don't have it in front of me, but Preston's book on Franco does a very good job of exploring this. Spain granted airfield rights to the Luftwaffe early in the Battle of Britain (the British considered bombing them but Churchill vetoed the idea, Spain in turn withdrew them when it became clear that it had been learned and that the British weren't happy about it). Spain also granted port rights to U-boats during the war. If I recall correctly, Spain also aided the Germans through the use of surface vessels, or perhaps it was long range aircraft, with radio communications into the Atlantic although I'm fuzzier on that and will have to look it up in Preston's book. Finally, Franco allowed the recruitment of the "Blue Division" of volunteers to serve in a sort of Spanish foreign legion that served on the Russian Front, which was later converted into a Waffen SS unit due to Allied protests.

In short, while Spain wasn't a declared belligerent, it wasn't exactly neutral either. It avoided being regarded as a belligerent as it went far down that route, but not far enough to cross over a line to where the Allies felt compelled to declare war on it, and Spain never declared war itself.

As for why Spain didn't become a declared belligerent, Preston also details that Franco was bargaining for the expansion of Spanish Morocco, with which Franco had particular connections, at the expense of French Morocco. But the Germans could not really intervene in Spain's favor as by that point they were tied in some ways to Vichy France.

Of course, that's only one reason. Others are provided by the answers already provided. And in addition, Franco was and remains an individual who is exceedingly hard to figure out.