Not making it to the finals usually means that you fell out earlier. It's more humiliating to get knocked out in the group stage than it is losing in the finals. Coming in second place is still a mark of excellence.
Yes and no. The italian team juventus played 9 finals of the champions league... losing 7 of them. It's not a mark of excellence, is a curse and not at all a thing they are proud of. A similar thing can be said for Benfica. If you lose too much, at a certain point you become a meme.
Let's look at the most recent World Cup, Qatar 2022. France lost in the finals. Italy failed to even qualify for the world cup. I know which of the two is more embarrassing. Consistently making it far in the tournament (and runner-up is the furthest you can make it without actually winning it) is indicative of a powerful Football nation. Imagine comparing hypothetical team "x", who made it to the final game 5 times and lost all 5, compared to hypothetical team "y" who never made it past the group stage. It would take some very serious mental gymnastics to argue that team "y" has a stronger history than team "x". Using the Olympics as an analogue, winning a silver medal is nowhere near as prestigious as winning a gold, but it is still a lot better than not winning a medal at all.
Well, look at the 2 last European Cups. England went to the finals both times. Italy won one and was eliminated in a very embarassing way during the last tournament. England has been more consistent, but guess who's happier? Regarding your hypothetical example... sure, team x is far stronger than team y, but if it loses all the finals, it certainly lacks that winning mentality that marks the difference between "being good" and "being a champion". And your example is not that hypothetical... except those 5 losses in the final are eight. Linky link
You've deviated from the original premise of the debate. Italy and Germany have the same number of World Cup wins, the second place position is only being used as a tie-breaker. I've never argued that winning the championship is not more valuable than consistent second place finishing. Of course winning it all is the greater feat, but that isn't what we've been debating. Coming in second place is still a mark of excellence, but nowhere close to the level of winning the championship itself. Maybe, but team y wouldn't have that championship mentality either. However, Team x would at least achieve the level of "being good" as you described it, while team y would not. Ergo, team x > team y. Ergo Germany > Italy. Let's extend it further. The Netherlands have finished as World Cup runner-ups on three occasions, but have never won the championship. Canada has also never won the championship and at the same time have never been runner-ups. From those results, it is more than fair to assert that the Netherlands is a stronger football nation than Canada. Overall it is pretty straightforward, if you're tied in terms of first place finishes, then you go to second place finishes. That's the way the Olympics medal standings are ordered as well.