I see your point, since players in those specific countries could benefit from that change. However, we would probably have the same situation as in NA then, there we've got many different servers scattered all over the country. The problem is, that players who have got a decent MMR cannot join any server by using the server browser in many cases, so that they have to rely on MM. As far as I know MM still puts you into a server that fits your MMR the best regardless of your ping, so you quite often end up in a server you would have never joined in the first place because you've got a ridiculously high ping in there. Also, new players tend not to use the server browser, so they wouldn't benefit from that change as well. This is already a problem in NA, where we've got way more players than in the EU region, so it would be even worse over here.
I've heard from many players that they've got way more problems in Amsterdam servers than they've got in Frankfurt servers and considering the not that big distance between Frankfurt and Amsterdam I would like to know what problems would appear for some players when playing in Madrid servers then. I personally think that Frankfurt is a good choice for a server location since there's one of the biggest internet exchange points of the world in Frankfurt, if not the biggest.
Still, many players have got problems in Frankfurt servers and this is not the result of the distance to Frankfurt (at least it's not the only cause), more importantly it's the result of bad servers. What the EU community really needs is a decent server host - respectively decent servers - in Frankfurt and (almost) everything would be fine. I can totally understand that Reloaded hasn't got (or doesn't want to spend) the required resources to make this happen, since Hawken does not make any money at the moment, but it's still both sad and totally ridiculous one had got a better experience in i3D servers than in the recent Frankfurt servers. Hopefully this will change as soon as we'll get a bigger playerbase and if that's the case, one will probably consider hosting servers in different countries, too.