In a week when Barack Obama pledged to help "remake the world" on the European leg of his presidential campaign trail, Walter Smith resisted the temptation to clamber on to his soap box to bemoan the financial constraints he believes UEFA have inflicted on the continent's underprivileged football nations.

The Rangers manager is bracing himself for a familiarly fraught August at Ibrox. This time around, the perennial peril of the Champions League preliminary rounds is exacerbated by the club's dwindling bargaining power in the transfer market.

Smith confirmed the club's attempts to sign Steven Davis are "finished" after failing to agree a fee with Fulham; this despite The Herald revealing on Thursday that the Craven Cottage side had reduced their original £4m asking price.

He will now plot a safe passage past FB Kaunas, the Lithuanian champions, with a squad that is abundant in personnel but deficient in the quality required to thrive at the elite end. The parameters of success have narrowed in his second term of office yet, while Smith reiterated the importance of breaking Celtic's domestic stranglehold, he bluntly declared reaching the bountiful Champions League group stages was of greater benefit to the club than last season's grinding charge to the UEFA Cup final.

The potential £10m jackpot for overcoming two qualification ties will enable Smith to continue his ongoing improvement of the first-team squad. Failure will seriously compromise Rangers' future spending power at a time when Celtic's sustained Champions League clover has facilitated a decisive transfer leeway.

"Kaunas is a major anxiety because we have awkward games at the wrong time for us," said Smith as he prepared for today's final dress rehearsal for the visit of Kaunas, against Raith Rovers at Starks Park.

"We do not get the benefit of three or four competitive games we are right into it but it is something we have to overcome if we want to achieve anything. The financial aspect is enormous for the smaller countries like ours. In that regard, I would say, yes, it probably is more important to the club than a UEFA Cup final."

Fans are becoming restless over the club's signing sagas. But for a further climbdown from Fulham, Davis will not be returning to Scotland after a productive six-month loan spell. "We haven't been able to reach agreement with the club so it is now finished," he said." Steven would like to come here and I think there is a frustration on both sides. They Fulham came back to us this week but even then a deal still could not be done."

Interest in Pedro Mendes is a non-starter purely on the grounds that Rangers can no longer indulge in luxury acquisitions of £32,000 per week. Instead, Rangers will weigh up the merits of a £1.5m bid for Glenn Loovens, of Cardiff City, when they can wait a year and sign him on a Bosman. Dickson Etuhu, of Sunderland, is within Rangers' budget but would require the club to spend comparatively big money on a player whose track record is hardly irresistible. Such risk assessment is a part of everyday life at Murray Park for Smith. A club that not so long ago spent £12m on Tore Andre Flo to make the quantum leap in Europe have now radically altered their ambitions.

It is a quirk of fate that this economic downturn should coincide with a UEFA Cup final appearance against Zenit St Petersburg.

"There is a realism that the Champions League might be beyond us," said Smith. "The UEFA Cup can be done but not on a consistent basis. That is just the realistic view. Celtic have shown success is possible in the last couple of seasons and we managed it in the UEFA Cup, albeit in a more defensive manner.

"We have shown we are still capable of a level of success in Europe but we have to be realistic enough to say a team in a country with a 5m population is not going to win it. The winners are going to come from the biggest countries under the current set-up. We played Schalke 04 last week. They have a very strong squad but they are only in the top four in Germany and struggling to compete against the real top teams in their own country."

For all the sobering reality second time around at Rangers, Smith was adamant that the ambitions of the football department will be compromised as a consequence of the frugality. The big fish of the Scottish scene have become accustomed to plankton status in the wider context of European football.

"I agree with the fans that we should be up there with the best but the financial aspect of football makes it difficult," he said. "Obviously, you still have to be optimistic and hope to defy the odds a little bit. We are not in a situation where we simply give up on Europe. In fact, I would hope now the opposite would be the case in terms of upsetting the odds.

"The major difference to 10 or 20 years ago is that it is predominantly a finance-based game. I'm listening to managers in England spending a fortune on transfers and wages and saying they still have no chance of breaking into the top four. That's the level of spending we are at now. The supporters might not accept it but we have to make sure we do not accept it, either."

Smith will continue his bargain hunt between now and the August 31 deadline. The signings of Andrius Velicka, Kenny Miller and Kyle Lafferty have given Rangers a top-heavy appearance, with Kris Boyd, Jean-Claude Darcheville, Daniel Cousin and Nacho Novo already in situ. Injury to Barry Ferguson and the departures of Davis, Thomas Buffel and Amde Faye have left Rangers with a distinctly uninspiring roll-call of midfield players.

"Guile does not come cheap," said Smith. "We are a little bit short but there is no point in signing anybody I do not really want."

It was a variation of the theme explored by Gordon Strachan in the Algarve, with Pat McCourt the club's only fresh face aside from Giorgios Samaras's permanent signing.

The true test of Rangers' strength will be discovered when Kaunas come to Ibrox next midweek. "They are a good standard," said Smith. "Poor finishing cost them at this stage last season. Anyone watching the games saw that they were a far better team than FK Zeta."