The veteran coach feels that the Bianconeri are too far ahead of the rest in the Scudetto race to be able to mount a serious challenge for the Champions League
The Bianconeri reached the quarter-finals of the competition last term, but were eliminated at the group stage this time out after a shock loss to Galatasaray in Istanbul.
And the 67-year-old feels that high-profile player exits in recent seasons have made the Italian top flight ill-equipped to challenge other top leagues.
"The Italian league is not competitive enough," he told La Gazzetta dello Sport when asked why they suffered an early European exit.
"Roma, Napoli and Fiorentina have sold [Erik] Lamela, [Edinson] Cavani and [Stevan] Jovetic, their best players, abroad.
"They replaced them well, but in the meantime, [Antonio] Conte and [Beppe] Marotta added Carlos Tevez and Fernando Llorente and created an even bigger gap."
AC Milan are the only Serie A side remaining in the Champions League this term, but Capello feels they are underdogs for the last-16 clash with Atletico Madrid.
"Real Madrid, Barcelona, Bayern Munich and Chelsea will be the semi-finals.
"Atletico are favourites, but if Milan are unable to play their own game, Kaka, [Mario] Balotelli and [Giampaolo] Pazzini have the skills to make something happen."