The Real Madrid midfielder has been identified as a replacement for Aaron Ramsey, who joined Juventus on a free.
Due to their limited budget, a loan move will be the most likely way of bringing the 22-year-old to Arsenal, who have seen off mild interest from Tottenham for the high-rated Spaniard.
Ceballos is said to favour a move to Unai Emery’s side over Tottenham due to there being more first-team opportunities at Arsenal.
“I don’t want to speak about the names but Ceballos is a very good player,” said Emery when asked about potential transfers.
Crystal Palace manager Roy Hodgson offered Arsenal a glimmer of hope in their pursuit of Wilfried Zaha. The Palace boss confirmed that the club has rejected a £40m bid for their talisman but did not explicitly rule out a future deal if their £80m valuation is met.
“I don't think Arsenal have actually made a bid that has come anywhere near our valuation,” Hodgson said.
“I’m sure the player realises that if someone's going to take him away from us, he'll expect clubs to pay the market value. Until someone does that, there's not much to discuss regarding Wilf.”
Arsenal are also continuing their attempts to sign Celtic defender Kieran Tierney, but are facing similar problems.
Neil Lennon pointed to Manchester United’s £50m acquisition of Aaron Wan-Bissaka as a reason why Arsenal’s £25m bid was rejected.
Little has progressed between the two clubs as Arsenal continue to work out how best to spent their limited budget. In an open letter to Arsenal supporters, Josh Kronke confirmed: “we are working with a Champions League wage budget and a Europa League transfer budget.
There is better news on Arsenal’s progress in brining William Saliba to the club.
Arsenal are on the verge of completing a permanent deal for the 18-year-old defender, which will include him returned to Saint-Etienne on loan for one season.
The £27m transfer fee will not impact this year’s budget as the majority of it will be paid in instalments.
Meanwhile Laurent Koscielny may see his pay deducted after he refused to travel on the club’s pre-season tour amid an on-going row with the club.
French newspaper L’Equipe report that the two parties, along with their lawyers, will meet this weekend for talks to resolve the situation.
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