There is a large part of Europe which proves you wrong; namely Central Europe, where international trains are still plentiful, well patronized and, though not entirely, in significant parts operated without PSO (and with bus competition).
Of course there still is an important enough market for those trains left. Many medium-sized cities are not connected by plane, and not everybody wants to take a bus or drive themselves.
The difference between those countries and another places like France, Italy and Spain is that in those latter places, state incumbents have been allowed to operate as private monopolies without any kind of regulation. Italy and now Spain have tried to remedy this by injecting competition, but this is limited to High-Speed-Lines and not much use on the rest of the network.
The absurdity of it is plainly seen in a case mentioned in another thread - although London - Marseille - Nice could have an attractive offer with a change in Lille, it is getting more difficult each year because SNCF is reducing services or transferring them to Ouigo.
In the same Spirit, a train Madrid - Lisboa is seen as unattractive because only the two capital cities are regarded - as if there are not enough intermediate cities, some of them quite large, which would deserve and justify international connections.
The idea that only HSR can compete, is, in any case, plain wrong and even if it were true, mostly useless, since building HSL is so hugely expensive and can therefore only be justified on a few major routes.