The former Real Sociedad man appeared set to leave Anfield last summer amid the Merseysiders' well-documented chase of Aston Villa anchorman Gareth Barry.
However, neither move was completed, with Alonso going on to star for the Reds in 2008/09 as Rafael Benitez's men mounted a strong challenge for the Premier League title.
12 months on, and speculation surrounds Alonso's future again, with both Arsenal and Real Madrid believed to be in the hunt for the 27-year-old.
But despite Benitez insisting he is not interested in selling his fellow countryman, Balague believes the Madridistas - with former president Florentino Perez back at the helm - are genuinely pursuing the midfielder and may make Liverpool an offer that will be too good to turn down.
“Xabi Alonso is a definite Real Madrid target and Rafa Benitez is aware of that fact,” he said on guillembalague.com.
“After 5 years at Anfield, the player could be feeling that now is the right time to return to Spain, plus Benitez could certainly make use of the €25 million or so he will receive for Alonso in the transfer market this summer.
“There is still much work to be done, but if it were to happen, I am under the impression that this deal could be concluded relatively quickly and be finalized within the next three weeks or so.”
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