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"This raises several questions: 1. Could a Spanish-German alliance have defeated the US?
2. Given a large colony (albeit halfway round the world), would Germany have been less threatening in Europe?
3. What would the US reaction have been to a growing German presence in the Pacific?

Harry Turtledove would probably have a field day with these. "

1. Possibly. But the best chance for this alliance would be to start it in advance a few years, say 3 to five. This gives Armada Espanola time to have a German or Austro Hungarian yard reboiler, refurbish and repair its ships. Their cruisers weren't bad ships, just very poorly maintained. This also gives them time for training in gunnery and other areas. In return, part of the P.I. are ceded to Germany. A Spanish/German fleet would be a tough nut for the USN to crack, Spanish cruisers could have taken a big toll on our merchant fleet, which would have had the New Englanders screaming like raped apes, and cooling their ardor towards war, as incited by Hearst and Pullitzer.
This also brings up the possibility of early war raids on US ports by a naval force. If done quickly (within, at most, a few weeks of war being declared) US defences wouldn't be in place yet, or at best not completed. Imagine a raid on Manhattan, landing parties ashore, pillaging banks, the stock exchange, dropping mines on the way out, snking ships in that crowded harbor with torpedoes and gunfire. I did a bit of research on this a few years back, and IMO was possible, with at least a 50% chance of getting away clear.
A bit more artillery in the Caribbean and some help with German advisors and a few troops would do alot for the Spanish Army there. We almost lost the war in Cuba as it was, a bit more proficiency on the ground and we would have been in trouble.
2. Possibly. but then again, it may merely have whetted their appetites for more. And it certainly would have pissed the Japanese off to no end. they are already mad as hell at the French, the Russians and the Germans over being forced ot give up the Liaotung Penninsula and Port Arthur after the 1st Sino-Japanese War of 1894/1895. This issue will make it interesting for any possible alliance between Germany and England as Pete postulated earlier. By the way, the IJN was also present in Manila Bay during the time of the near US/German altercation, and politely said that if we didn't want the P.I., the government of Japan would be happy to take it over and civilize it.

3. Suspicion and outrage to war. Depends on how they got the P.I. from Spain. If it was by fighting Dewey, WWI comes a decade or so early. If they get it prior to the SpanAmWar, simple suspicion and outrage. The earlier fracas in Samoa still rankles.

Turtledove? He had some good stuff earlier. I got into one of his series a couple of months back, and was sorely disapointed. He seemed entirely too formulaic, really badly written stuff. I have sworn off him since then.
later, Bill