"Greece is off the table," assuming that Europe continues its financial support and shows a willingness to be "a bit more generous," the former managing director at the Institute of International Finance told CNBC's "Squawk Box" in an interview from Zurich on Tuesday, the eve of the World Economic Forum in Davos, Switzerland.
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"Greece has gone through a tremendous period of adjustment. And I think it's time that Europe recognizes that they've done a lot, particularly on the fiscal front," he added.
While bond yields in Greece and other economically challenged European countries head lower, Dallara said the moves are tied to the "massive flooding of liquidity in the global markets," rather than dramatically improving economies.
"There's a disconnect between the fundamentals and market pricing of risk," he said. "Certainly the risk of default in Ireland and Greece and Portugal and Italy is much lower than it was two years ago. But that doesn't mean these yields reflect fundamental improvement in the underlying economies."
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