"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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Ireland's five-year borrowing costs , after Moody's restored that country's credit rating to investment grade. Yields on five-year Irish bonds fell below their U.K. and U.S. counterparts.
As for China, Dallara said he does not see it posing a significant systemic risk. "I do think that China has the potential to lead to instability in global markets this year, [but] not enough to destabilize the global financial system by any means."
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"[But] most Chinese financial institutions went on road shows in the last five years, raised a good bit of stock in global markets. So these institutions are not just owned by the Chinese government today," he said. "They each have a cadre of shareholders spread around global markets."
Dallara is now chairman of the Americas at the Partners Group, a Swiss-based private equity firm.