Spain is under intense pressure from its European peers to streamline the euro zone's fourth largest economy, reduce a huge public deficit and fix a banking system battered by a four-year economic slump and a burst property bubble.
Italian capital Rome had also started bidding for the 2020 Olympics before their government pulled the plug on the candidacy in February, saying it could not provide financial guarantees as they worked towards heading off their own debt crisis.
Following Rome's surprise withdrawal there have been concerns that Madrid's bid could also be affected by the debt crisis in Spain, where the economy slipped into recession in the first quarter in late April.
"Madrid has absolutely no intention of backing out of bidding for the Games. This is not going to be Rome II," the bid's CEO of international relations Theresa Zabell told Reuters in an interview. "We will be in Buenos Aires next year with a strong bid."
The International Olympic Committee will elect the winning bid for the world's biggest multi-sports extravaganza in September 2013 in Argentina, with Istanbul, Azeri capital Baku, Qatar's Doha and Tokyo also in the running.
Madrid is bidding for the third consecutive time after losing out to London for the 2012 Games and Rio de Janeiro for 2016.
"The economic situation is an extra item that did not exist in the last bids," said Zabell, a winner of two Olympic sailing gold medals. "Bidding for the Olympic Games is not a cost. It is an investment in our country. Not only in material but also in morale."
Madrid's bid has all but six venues already in place, but has decided to shift the focus from past bids on to the Games' sporting aspect.
Spanish athletes have enjoyed massive success internationally in recent years, especially the national soccer and basketball teams, with the country's tennis players also lifting several titles.
Madrid is also keen to push their capabilities as hosts and point to the fact that in the last ten years the city has played host to 85 European championships and 77 world championships.
"Few cities can boast of holding so many international events of such a large category," she said.
In the coming two years the Spanish capital will host six more world championships for Olympic sports.
"We really need the Games. We have a high percent of unemployment and we need the Games to get the country moving," Zabell said.
"Unemployment for people under 25 years is very high and they are the best qualified generation of people we have in the history of Spain and we need to give them their first job opportunity. There is no better force to change than the Games."
Zabell said Madrid's bid was also the only one from the heart of Europe and would provide a safe return after the first South American Games in 2016.
"New countries are trying to bid for the Games that traditionally did not bid before," said Zabell.
"But I personally don't think the Olympic Games can go from new countries (Brazil in 2016) to new countries. They have to come back to countries where they know the Games will be a quality experience."