Xavi, a World Cup and European Championship winner with Spain, has made over 650 outings for the Catalans, helping them win 22 trophies, including three Champions League crowns.
The 33-year-old is also a member of the Fifa Century Club, with 128 appearances for La Roja to date.
"Xavi is the best midfielder of the last decade," Capello told Onda Cero, before adding: "Neymar could become the leader of Barcelona in the future."
Meanwhile, Capello feels his Italian compatriot Carlo Ancelotti can guide Real Madrid to European honours this season.
"Ancelotti needs time," Capello said.
"The players need to adapt to the changes. For me, Real Madrid remain favourites to win the Champions League."
Los Blancos host FC Copenhagen in a Champions League Group B tie on Wednesday, a day after Barca visit Glasgow Celtic in Scotland.