6chimes - I partly agree with your points. Big complex machines will sometimes go wrong. Maintenance and engineering will take you so far, but some things just cannot be prevented.
However, from an economics standpoint, I still think that a compensatory system is to the benefit of all.
Having fool-proof back-up is extremely expensive and completely unviable, but having 1%-2% of a fleet on standby at strategic locations may well be viable. Yes, the EU compensation amounts for short-haul are high, but this is intended to be a deterrent - and encourage an airline to keep a little part of its operation in reserve instead.
If an airline can say 'Here's your money back, now go away', there is little economic incentive to have any kind of reserve. An airline that's been running for many years should know the frequency of planes going tech. Given this probability, work out the cost of compensation for a 70% load factor. Now compare the cost of having 0.5%, 1% and 2% of fleet on standby without needing to pay compensation. There will be some break-even point beyond which a hot standby is the cheaper option. Further, if there's some reason which often accounts for tech but remains unresolved because of internal politics, this provides an inducement for the organisation to fix it.
Yes, there will be times when that standby isn't sufficient - but it probably provides a back-up solution for 80% of the cases when EU compensation would otherwise be payable.
Since all EU carriers get punished the same way, it means all carriers inevitable raise their fares a small amount to cover the cost of this hot standby. Pax of course end up paying for it in higher fares - but are usually happier with this regime, compared to saving a little bit of cash at the cost of no back-up.
You may be interested to know that at some major train stations in London, the main operators keep a spare train and driver just for the times when a train goes tech. No reason airlines can't be coerced into keeping a little bit in reserve as well....