The central issue here is there are simply no solutions to the Irish border problem that meet the needs both to have a border and to not have a border.
To understand the EU's position we must first remember that the EU is made up of 28 member states that must all agree before a deal can be ratified. We must also remember that one of these states is the Republic of Ireland a country that clearly has strong ties with Northern Ireland (as evidenced by attacks on border posts during the troubles).
The remaining countries which are not directly affected by the border problem but may be concerned about damaging the integrity of the EU itself, thus, ruling out a number of options. They do want to reduce any impact that brexit will have on them however some parts of the EU will be more affected by the EU's integrity than the potential short to medium term effects caused by no deal.
Why would the UK find no deal to be OK? Northern Ireland is only a small part of the UK and the Irish border has little impact on the rest of the UK. Part of the reason this border has been such an issue is that the DUP prop up the government and without these votes the government may not be able to get the deal through parliament (currently the DUP has withdrawn support for the deal due to concerns about the border arrangements)
Meanwhile both sides have to appear to be willing to accept the consequences of no deal otherwise they seem weak and will find it harder to negotiate a deal in their favour both on this issue and in other areas. If it comes to a no deal scenario neither side will have to agree on anything and thus there is a risk of this fallback if the situation is not resolved.
As an additional consideration there is the questionable use of having a border between two countries when neither of those countries really want to have that border after all WTO rules (or other rules) will rely on border infrastructure and enforcement by one or both sides.