Forget hostels/hotels. Travel overnight on trains.
Like the last poster said, don't plan. Do whatever takes your fancy and travel with a similar outlook. Ignore all comments about cities. Go and make your own mind up. If you're starting in Bilbao head eastwards, stopping in possibly Marseille, then on to northern Italy. Again, as MikeyHead states, you'll find Italy fascinating. The beauty of the Inter-rail card and big countries like Italy and Germany is that you can be in a city in the north one day and in the south on the next day (or vice versa).
I used the Inter-Rail card in 1974, principally for the World Cup in West Germany, but I also travelled to Belgium, Holland, Denmark, Norway and Sweden.
In 1977 I managed West Germany, Austria, Yugoslavia, Romania, Spain, France, Italy and Switzerland.
In 1980 I travelled mainly in Italy for the European Championships, as I did in 1990 for the World Cup.
I did not use a single hostel/hotel during the latter two trips.
Single country rail passes are also useful, as was the case in France 1984, West Germany 1988 and Sweden 1992 (European Championships) and Morocco in 2010.
You'll be amazed at just how much more money you have available to you for other things, like beer, if you do not go down the hostel/hotel route.