A passer-by navigates the beer bottles and other trash left behind by soccer fans in Madrid's Plaza Mayor. Bernardo Pérez

Javier Estrella remembers the scene: "Miles Davis was sitting back on a couch, caressing his trumpet with one hand. I walked into the dressing room and told him, 'Miles, the Berlin Wall just fell.' He smiled and asked whether it had fallen all by itself. Then he picked up the trumpet and started playing Lili Marleen. It was amazing."

On that historic day, November 9, 1989, Davis performed before a crowd of 5,000 at Palacio de los Deportes, as part of the Madrid Jazz Festival. Estrella, who has been organizing the event since it began in 1979, gets all worked up when he comes to the end of the anecdote. That is because this year, there will be no jazz festival in Madrid. With just one month to go before the opening date, Estrella has cancelled all 14 scheduled concerts - which were already much more modest than those of the past - because the city of Madrid would not guarantee the use of the Fernán Gómez theater.

"All they had to do was let us use the theaters and put up posters on the city-owned street furniture. We were going to make do with the box office takings. But even that was too much for them. Since 1994 [the festival] has drawn an average of 40,000 spectators, but they don't care about that."

The authorities have finally acknowledged that the city streets

It would have been the 30th edition of the Madrid Jazz Festival (between 2001 and 2003 the name changed to Emociona Jazz and it was not run by Estrella). Madrid's culture chief, Pedro Corral, defends the cancellation, claiming that too many demands had been made by the organizers: "The conditions were draconian and we could not accept them," he says. "The days of getting everything for free are over."

Sure, jazz might not matter all that much. It could well be that the loss of one festival will go by unnoticed by many of the capital's 3.3 million inhabitants. But it does reflect the city's cultural decline. Madrid is just not as attractive as it used to be.

Madrid has had more than its share of bad news in recent weeks. Not only did it lose its third Olympic bid, it also lost 22 percent of its tourists in August, even as visitor arrivals grew elsewhere in Spain. Meanwhile, Barajas airport has been losing flights since the Iberia-BA merger, and has been surpassed in arrivals by El Prat in Barcelona; the Prado museum expects visitors to drop by a quarter in 2013; and the local authorities have finally acknowledged that the city streets are dirty (although they blame the problem on "dysfunctions" that have been resolved with a new cleaning contract). Great bands hardly ever come to Madrid anymore, and the city's once-famous nightlife is fading away.

Politics are not faring much better. Ana Botella is mayor because the people's choice, Alberto Ruiz-Gallardón of the Popular Party (PP), left to become justice minister, and his replacement is regularly the target of cruel jokes over her speeches - both in English and in Spanish. Local governance is bogged down by a staggering debt of nearly 7.4 billion euros that prevents new projects from seeing the light.

The regional premier, Ignacio González (also of the conservative PP), was not elected by the people either. He rose to the post when Esperanza Aguirre announced she was bowing out of politics in September 2012. González's major initiative so far, privatizing healthcare, is caught up in a legal battle. His other great project for the region is Eurovegas, an enormous planned gambling resort, which would be run by a US business tycoon who is demanding that Madrid lawmakers tweak existing legislation to accommodate his wishes, such as lifting the nationwide smoking ban inside his casinos.

Great bands hardly ever come anymore, and the once-famous

But Madrid's big dream all these years - under Álvarez del Manzano, Ruiz-Gallardón and Botella - was to host the Olympic Games. With Barcelona as a successful role model, all three Madrid mayors figured that being an Olympic city would provide the kind of economic traction that would really put the capital on the international map.

But after 12 years of trying, Madrid finally seems aware that it has nothing more to say. A walk through the dirty city center gives one a sense of abandonment. Not even the local landmarks get special treatment: in Plaza Mayor - where Botella encouraged International Olympic Committee members to enjoy a "relaxing café con leche" - there were 30 homeless people sleeping inside cardboard boxes last Thursday. Local residents complain about the filth and claim they have seen rats. Not far from here is another major square, Plaza de España, now lined with derelict buildings filled with squatters. On the city center's main thoroughfare, Gran Vía, some historic buildings remain walled up, such as the former movie theatre Palacio de la Música. The avenue is dotted with overflowing trash cans.

The city's cleaning budget has felt the pinch of the crisis. The 154 million euros allotted to street cleaning in 2010 fell to 129 million in 2012, and remains the same this year. But things could still get worse. Unions are talking about an indefinite cleaning strike to protest 1,400 impending layoffs.

The budget item that includes maintenance work on sidewalks, overpasses, underpasses and public lighting dropped all of 46 percent between 2011 and 2013 (from 310 million euros to 167 million). In fact, this has been the first month of August in a solid 20 years without the "pavement patrols" that were routinely sent out to fix potholes and fill cracks across the city. And the Metro system, until recently a source of pride for Madrileños, is now being criticized because of the longer waits and the money that's being saved on air conditioning.

Madrid also lacks a strong brand, a postcard image to identify it, an inspiring tale to attract world renown. This is a source of concern for authorities, and also for several civil groups, who are trying to change the city model. The young architects at PKMN, a studio that is rethinking Madrid at its headquarters in the neighborhood of Tetuán, recently conducted an experiment. They asked a group of US students to make cardboard hats and decorate them with motifs representing Madrid landmarks or iconic objects. Some of them added images of the Prado Museum, others of the Metro, and others of Real Madrid. Several students made references to Museo del Jamón and Cien Montaditos, two inexpensive tapas franchises that draw thousands of tourists.

Cien Montaditos, owned by catering group Restalia, is a case study in low-cost tapas. The first branch opened in 2003 in the capital; today there are 81 Cien Montaditos across the Madrid region. Meanwhile, small mom-and-pop establishments are vanishing. Around 4,500 bars and cafeterias have shut down in four years, 1,800 of them in 2012, according to the hospitality association La Viña. Local eateries close down, franchises open up. "Tourism has drifted toward the 'relaxing café con leche' model and that makes the city more homogenous," says Carmelo Rodríguez, a member of PKMN.

"Madrid bears the stigma of having been the capital of the dictatorship, and that still weighs heavily," says Olivia Muñoz-Rojas, a sociologist who specializes in cities. A resident of Paris, Muñoz-Rojas believes that the Spanish capital should stress its laid-back, low-key nature. "Madrid is able to organize a World Youth Day including a visit by the pope and a Gay Pride parade just days later. I think that is where its strength lies. Madrid is cool in and of itself. I have lived in London and Paris, and these cities have their own codes: 'in' places you should go, cool clothes you have to wear... In Madrid people do whatever they want, and that's what the city should sell."

The crisis has dictated the script that Madrid sticks to, and the authorities are not inclined to make many narrative changes. There is another project underway in the city that has drawn less attention than Eurovegas. Project Canalejas plans to build a luxury Four Seasons hotel just a few meters from the central Puerta del Sol square. The establishment would take up seven contiguous buildings, which until recently were owned by Banco Santander and are now the property of developer OHL.

A walk through the dirty city center gives one a sense of abandonment

Before the crisis, each time a company came forward with ideas for these downtown buildings, the city would put historical interests ahead of commercial concerns. The former Banco Exterior de España is already classified as a cultural landmark, while the old Banesto headquarters will be soon. In fact, Madrid was so keen on preserving its historical buildings that it asked the architect Rafael de la Hoz to draw up a list of all sites that should receive protection. That report, thousands of pages long, now lies at the back of a drawer somewhere - the city is only interested in protecting the façades. OHL will be allowed to build its hotel. The Carlos Lamela studio claims it will respect all valuable elements, but the project has already been criticized by more than 20 architects, not to mention the venerable art institution Real Academia de Bellas Artes de San Fernando.

"Architecture has a meaning as a whole. Façades have a meaning that matches what lies inside. You cannot simply preserve one part, much less change the laws due to economic interests," explains Vicente Patón, president of Madrid, Ciudadanía y Patrimonio, an association that defends Madrid's historical heritage.

Besides the luxury hotel, the city's other great building project is an overhaul of the Real Madrid soccer club's stadium. But that is up to club president Florentino Pérez, and whether he finds a company willing to sponsor the project in exchange for adding its name to the stadium. An old plan to turn Paseo del Prado into the world's museum center lies dormant through lack of funds. And there is a competition for ideas to revamp Puerta del Sol - yet again - but neither local nor regional authorities are pledging funds.

For years, Madrid sought to have its own skyline, but in the end all it got were architectural tombs and unfinished projects. Across from the four skyscrapers that rise from Paseo de la Castellana, a large ditch marks the spot where the new convention center, Palacio de Congresos, was going to stand. The amazing Campus de la Justicia, which was set to house all existing legal institutions in 14 buildings, came to nothing apart from one construction - the Institute of Legal Medicine - and one scale model of the planned project. Nor has there been much success with the Nuevos Ministerios airport terminal, which was going to allow Barajas passengers to check in their luggage at the central transport hub before reaching the airport. Ditto with the Caja Mágica, a tennis facility built with the Games in mind at a cost of 300 million euros, and which has been of little use except to host the Madrid Open two weeks out of the year. Other facilities for the bid were never completed, such as the Olympic Stadium and the Aquatic Center. Their presence now serves to remind residents of the failed attempt to bring some wealth to the city.

Madrid has very creative people. But it's missing dialogue with the authorities"

So where is Madrid headed, exactly? The capital is a city without a project, without an image, without a story, according to many of its critics.

The last thing that brought Madrid international attention was the movida, back in the 1980s. The cultural and social revolution that came after the end of the Franco regime saw the city proudly advertising that it was possible to go out any night of the week and find a broad selection of open bars, theater performances, music concerts and more. It was genuinely the city that never sleeps. But some say this is no longer so true.

Marcela San Martín has been at the helm of the well-known concert venue Sala El Sol since 1995. There is a certain aura of nostalgia to a place that hosts around 250 concerts a year. Back in the 1980s, "the champagne flowed freely," she explains.

"It was the kind of place that could host a book presentation by Francisco Umbral, an album release by Nacha Pop or an Almodóvar party." But now, she says, these sorts of venues are "being persecuted by the city," which "wants to shut down the center."

"[The council] has no desire to help, nor to create a spirit of culture," adds San Martín. "Big concert promoters no longer come to Madrid. Prince played in Lisbon this summer but not here. The value-added tax hike and the SGAE fees [the cut taken by the copyright association that collects royalties] make live music gigs very complicated."

Comparisons with Barcelona are common. "I was at the Mercè fiestas. The squares were full of people listening to live music for free. There were lots of Europeans. That doesn't happen here anymore," she argues.

It's a common complaint. The theater sector is on the warpath, as well. Carlos López, who runs the Nuevo Apolo theater, paints a bleak picture. "A dozen playhouses shut down in Madrid this summer; nothing like that has ever happened before," he notes. "Lisbon and Porto have more culture to offer, and we won't even mention London and Paris. Theater trips involve dinners, drinks, taxis... but [the authorities] can't see that they make a city more dynamic."

Council chief Corral denies that there is a municipal problem, and calls on the Treasury to lower VAT on culture. But he warns against exaggerations: "I take a look at the Guía del Ocio [a city guide to entertainment] and I simply don't have time for everything that's on offer."

"This is a diffuse metropolis and it needs a narrative to recount the spatial transformations of contemporary Madrid," says Ariadna Cantís, one of the heads of Transforming Madrid, a collective project that is analyzing recent changes in the city and exploring future options. "A lot of things are getting done, but they don't always reach the greater public."

One such unknown social movement is Vivero de Iniciativas Ciudadanas (VIC), a neighborhood association that aims to contribute ideas that would improve the city. "We have to learn from the experience of other cities. Berlin, for instance, was able to get citizens involved in the city's construction," says Mauro Gil-Fournier, a VIC member. "Madrid has very active, critical and creative people. There are all kinds of initiatives, ranging from cycling issues to new uses for empty buildings. But what's missing is greater dialogue with the authorities."

Jeffrey Ludlow would agree with that. The US designer moved to Madrid a year ago, and after a lot of paperwork managed to set up a branch of a company called 2x4. "We came here for many reasons: because of its strategic location between the US and Asia, but also because of the talent. It's a bit like Berlin. Things are changing in this city."

Mayor Botella refused to talk to EL PAÍS for this story, as did her predecessors Alberto Ruiz-Gallardón (2003 -2011) and José María Álvarez del Manzano (1991-2003). Gallardón asked Juan Bravo, who was his treasury chief, to prove that Madrid's debt levels are not a problem. Bravo justified everything, from the Caja Mágica to moving City Hall to the Telecommunications Palace on Cibeles, as well as the project to bury the M-30 beltway underground and create a park above it.

"I am largely responsible for that debt, and we would do it all over again," said Bravo. In 2003, the city owed 1.4 billion euros (compared with 1.2 billion in Barcelona). In 2011, when Gallardón left the mayor's office, debt had ballooned to 6.3 billion (while Barcelona's had dropped to 1.09 billion). Bravo notes that they didn't just build underutilized "cultural containers" but also sports centers, schools, day centers and more. "In 2003, nobody could have foreseen the cataclysm."