I don't think it's a common scheme, but such places do exist (e.g., the Austrian Institute of Technology).
In Europe, the main reason why there are not more of these places is that it is damn hard to get public funding for them (and most universities around here are funded almost exclusively by the state). Simply put, the main incentive for the government to fund universities is undergraduate teaching, hence getting them to pay for a university without any of those is a tough sell. We tended to half-jokingly mention that teaching undergraduates is our day job, which we do to support our breadless research.
The above-mentioned AIT is a special case, in the sense that it is pretty young and mostly the result of a political process. That is, it was not a "scientific decision" to get the AIT started, but a political reaction to divert public attention away from the ever-sinking buget for the regular universities.