Because balises cost money, are payed for by infrastructure companies. Their position needs to be decided a priori, so you can't have the whole resolution on the whole network in order to get as close to the physical limits between trains as possible. Also it would be nice to be able to implement automatic shunting without additional infrastructure costs.

There are now hybrid systems for ETCS L2 that allow virtual blocks as short as 1 meter long. Balis + odometer is quite robust (and indeed how most CBTC systems with moving block tech function).