No matter how many of them you’ve wandered around, there are few places quite as pretty as an Eastern European old town square. Think of pastel-coloured, gabled houses, uneven cobbles, grandiose churches, quaint little shops, magnificent but slightly sinister towers. And maybe a plague column to commemorate the victims of the Black Death.

For many the most strikingly beautiful is the Estonian capital, Tallinn, which really does look as if it has sprung from the pages of a child’s picture book. Viewed from a photographer-friendly viewing platform on its hilltop, this miraculously intact jewel of the Baltic states could indeed be the setting for a fairytale if it weren’t for the docks, and the modern tower blocks on the peripheries. It’s been labelled “a pocket-sized Prague”, but that’s selling it short. Tallinn has turrets, for goodness’ sake, all cone-topped and russet-hued, just crying out for some enterprising film-maker to come along and remake The Prisoner of Zenda.

But don’t underestimate the Estonians’ yearning for modernity. After half a century of being held back by Nazi and Soviet oppressors, this modest country of 1.3 million has come a long way since the Singing Revolution of the late 1980s, when hundreds of thousands converged on the Tallinn Song Festival Arena to sing banned patriotic anthems. Following independence in 1991, it’s embraced capitalism with decidedly more zeal than neighbours Latvia and Lithuania, been a member of the EU since 2004 and adopted the euro this January. Tallinn, meanwhile, is the European Capital of Culture 2011, an honour it’s sharing with Turku in Finland.

On arrival, most visitors head straight for the rustic Old Town, which in centuries past consisted of two distinct districts: Toompea (Dome Hill), the city’s acropolis and a seat of power since the Danes started throwing their weight around in the 13th century; and All-linn (the Lower Town), traditionally inhabited by merchants and artisans. Outside of its 14th-century town wall, the look of the city veers between the extremes of drab Soviet functionalism and thrusting Western commercialism. That said, it’s to Tallinn’s credit that the best of its stylish, glass-and-chrome office blocks and shopping malls wouldn’t look out of place in London or Frankfurt.

Apart from the amazing views, Toompea’s biggest draws are its castle – which dates back to 1227, was rebuilt by Catherine the Great in the 1760s and now houses the Estonian parliament – and its two principal churches, which couldn’t be more different from each another. On the one hand there’s the Lutheran Cathedral of St Mary the Virgin, a Baroque 14th- century masterpiece that’s famous for its mounted funereal coats of arms. And on the other there’s the Orthodox, onion- domed Aleksander Nevski Cathedral, built as a blatant symbol of Russian imperialism from 1894-1900, which resembles an outrageously gaudy cake.

Most of the excitement, though, is found in the Lower Town, with its enchanting Town Hall Square, trendy shops, heaving bars and pulsating nightclubs. It also hums with chic but cheap restaurants, where a main course typically costs upwards of €8. Tallinn’s hotels are good value, too, particularly since a glut of them came onto the market a couple of years ago. In March, a survey by hotels.com found that the city had the cheapest four-star rooms in the world, with rates averaging €62.

There are plenty more luxurious rooms to choose from though in the Old Town, including the medieval-era Schlössle Hotel, the elegant Three Sisters Hotel and the Hotel Telegraaf (above), the 1878 building which became Estonia’s first designer boutique, favoured by hipsters.

With the Capital of Culture tag, maybe Tallinn can raise its sights even higher this year. But if it’s going to do it properly, it will have to be this summer. As one of