The cost of leased lines is mostly dominated by - competition / available number of carriers - spare capacity - (central) locations of the end points
It is no longer dominated by line length.
Of course, you are talking about esoteric costs measured in Euros that are only of interests to a few providers. To the vast majority of Internet users it is clear that a path between Wiesbaden and Frankfurt is much cheaper that a path from Wiesbaden to London to Frankfurt. That's because the vast majority of Internet users measure the cost of a path in milliseconds of delay.
Or does it pass through Frankfurt because it is a neighbouring city?
No.
Well actually, your first response could be interpreted to mean that it often does pass through Frankfurt but that someone determined to find the best price can find a path directly to London for a lower price. In any case, if everyone in the Frankfurt-Mainz-Darmstadt-Wiesbaden area decided to start using geotop addressing for their IPv6 routing that does not prevent Wiesbaden from favouring a direct path to London over a path through Frankfurt. And since Wiesbaden is over 100,000 population, it will have its own city reservation which will likely be accepted in route announcements in London even if it is filtered in route announcements in New York. And none of this has anything to do with what routes an ISP carries internally in their network. If a New York ISP sells a direct link to a Wiesbaden ISP, I would expect them to carry a Wiesbaden prefix in their IBGP even though most New York ISPs filter at the regional Fr-Ma-Da-Wi boundary. As for free transit, if this New York ISP accepts traffic for Wiesbaden in their San Francisco PoP then they can easily identify it and pass through a charge to the Wiesbaden ISP. But if the Wiesbaden ISP does not agree to pay such charges then the New York provider can also easily block such traffic at their San Francisco PoP. An address allocation scheme does not mandate operational or business activities.
The key point is: The property "traffic belongs to ISP X" is _much_ more important than the property "traffic belongs to region Y".
End users, especially in the USA, disagree with you. They think that the traffic belongs to the end user and that the ISP is paid to carry it to its destination, period.
E.g. one might have a peering with ISP X, which means settlement free traffic exchange, compared to transit. Thus there is always the need for the full table if one would like to implement complex routing policies to consider quality and economical facts.
A smart ISP would consider that settlements and similar things would be better handled in OSS servers rather than in routers. And then the routing table size is no longer such an issue.
A regional ordering as dominant criteria would blow up the table dramatically, because of the need of the "from ISP" information for every region.
Nothing will blow up the table dramatically because routes do not get into the table unless they get past ISP filters. An ISP with PoPs in 30 cities is free to announce all their city level allocations to all their peers, and the peers are free to ignore any prefixes that are longer than the city-level prefixes as issued by the RIR route registry. --Michael Dillon