"this will be only used if the guests do not show up"...well, I created a virtual VISA with 5 EUROS. First thing my parents heard from the idiots "Your VISA card is not working".
Hotels typically do a pre-authorisation on your card which essentially checks to see if the card is active and that you have enough balance to cover the amount they are pre-authing. It does this by placing a hold on that amount until the transaction is settled or the authorisation falls off (usually a couple of days, but could be longer)
Since you only loaded on 5 euros, it'll naturally fail if they attempt a pre-auth above that. People who hand over a card to a hotel with not enough money on it are commonly trying to rip the hotel off.
TLDR; version: The hotel weren't "idiots", you just didn't understand how card payments work. Next time, create a virtual card with enough funds to actually cover the bill.