The key difference is that the A320 dated to the 1980s and was designed from the get-go for fly-by-wire and high-bypass turbofans. The 737 was in many respects

The key difference is that the A320 dated to the 1980s and was designed from the get-go for fly-by-wire and high-bypass turbofans. The 737 was in many respects an evolution of the 1950s-vintage Boeing 707, and was designed for low-bypass jets and to operate from rough fields using built-in steps or short airstairs rather than a modern terminal with jetway/piers. So the 73 family has a much shorter undercarriage, which affects the engine diameter, and so on. What they need is a new narrowbody that is to the 787 as the 757 was to the 767: narrow and lower capacity but same cockpit/control layout and handling characteristics (to make fleet crew management cheaper), and capacity overlapping at the high end with the bottom end of the widebody 787. But developing an all-new narrowbody costs tens of billions, while incrementally extending the 737 to the MAX was cheaper ...