The current A320 airframe would be able to accept a major upgrade of the aircraft into a new generation version with an A350 style flight deck and more modern fly by wire system architecture at a much lower cost than a clean sheet of paper new design. The basics are sound, the undercarriage is tall enough for modern engines and a long fuselage. The passenger cabin is comfortable with adequate overhead locker space. A few tweaks here and there, and Airbus would have a very competitive product against an all new Boeing design.
The B737 airframe is basically a chopped down B707 of 1950s vintage which competes on price alone against the more modern A320 series. It’s reached the limit of its development and any further improvements would require a new design. The cabin is cramped, the overhead lockers small and the flight deck is a mishmash as equipment which didn’t exist in the 1950s has had to be incorporated over the last few decades.. Cargo and baggage even needs to be hand loaded where as the A320 can use containers. It’s a run out model, heavily discounted to keep sales up until a new version arrives.
If Boeing came out with a brand new type it would overtake the A320 and the positions would be reversed, with Airbus competing on price against a more modern and efficient but costlier alternative. The question is how much better a new B737 replacement would be when compared to an unrated A320. Boeing would need to spend billions on a complete new design and this would need to be recovered. The improvements over the Airbus would need to be substantial to justify the required asking price of a brand new type. It would be less a question of which aircraft is better and more a question of which one would be more profitable.
It’s all a question of money.