A decade after independence from the moldering Soviet empire, the former "captive nations" of Estonia, Latvia, and Lithuania-postage-stamp republics wedged between the Baltic Sea to the west and Russia, Belarus, and Poland to the east and south - are slowly but surely finding their way from Iron Curtain gloom to Western European-style prosperity. Yet in Estonia, for example, the average household income of its 1.5 million inhabitants is still among the lowest in Europe (around $4,000), the cost of living a third of what it is in the United States, and its currency stable but weak against the dollar (one greenback recently bought 18 kroon), leading to rock-bottom prices such as 20¢ for a pastry, 50¢ for a loaf of bread, 35¢ for a liter of milk, and good hotel rooms for $20 to $40 a night. Those remarkable costs make this lovely land-the size of New Hampshire and Massachusetts combined - and its fairytale capital Tallinn (with a population of nearly 500,000) not only one of the top bargains of Europe but one of the cheapest places on earth.

Just a 90-minute ferry ride from Helsinki ($15-$35 each way) and an eight-and-a-half-hour flight from New York (from $450 round-trip off-season; see box), Eesti (Estonia's name in the local language, very close to Finnish) combines a picturesque countryside and lots of wild, sandy beaches with a capital city whose Old Town is one of Europe's most charming medieval jewels. Granted, there are also plenty of cheesy Soviet-era white elephants, but part of Estonia's fascination is a chance to see firsthand the malign legacy of the six-decade-long Soviet occupation, as well as the progress being made toward overcoming that legacy.

The treasures of Tallinn

The medieval quarter of Tallinn ("TAH-lin") is one of the best preserved in Europe, with a look somewhere between the Nordic and the Germanic (reminiscent of, say, Heidelberg, but at East European prices). Explore the old city walls, the bustling shopping streets, and the picture-perfect Raekoja plats (Town Hall Square) - oft used as a movie backdrop and ringed with outdoor cafes and open-air handicrafts markets where bargains include hand-trimmed wool sweaters ($15-$30) and fine glassware and linens. The tiny passageway between Vene and Mnnrivahe Streets called Katarnna Kaik has a whole guild of fine crafts shops offering original handmade scarves, leather books, wood, and linens. Don't miss the impressive Oleviste Kirik (St. Olaf's Church), at 397 feet the tallest building in Europe until the construction of the Eiffel Tower.

Climb the cobblestone streets up to Toompea, the upper part of town, to the grand Alexander Nevski Cathedral, completed in 1900. You'll also find the Kiek in de Kok (admission 60¢), a tower housing military and art exhibits. Its name means "Peep in the Kitchen," because its 144-foot height does let you peer into a few kitchens yourself.

Beyond the Old Town you'll see the rotting remnants of Soviet occupation - gray housing blocks, giant crumbling factories, huge military stations and monuments, scary guard towers (now climbable for a good view), and an enormous red-and-white radio tower that used to jam Voice of America broadcasts but now carries mobile phone signals. At the same time, angular new skyscrapers are gradually changing the city's face.

Stretching eastward along the coast is a beautiful three-mile beach at Pirita, with smooth sands and shallow seas, great for swimming in the summer. The beach adjoins breezy pine forests, and across the road are the looming, atmospheric ruins of St. Bridget's Convent, built in 1407, sacked by Ivan the Terrible in 1577, and now very popular for picnics. To the west of town is a picturesque area called Rocca al Mare, with walks by the sea, a zoo, and an engrossing open-air museum (adult admission $5) with nearly 100 examples of bygone country architecture on 210 acres of forest and low limestone cliffs overlooking the sea (take buses 21 or 6, a 15-minute ride from downtown). You can also walk west on a milelong seacoast path to the Kakumae Beach; much quieter than Pirita, it's the nicest in Tallinn, with clear, calm, and shallow water.

Tallinn hotels

Unless you're a fan of Soviet schlock, in Tallinn you'll probably want to stay as close to the Old Town as possible, and there are several reasonable hotels near the harbor. If you arrive by boat, the ten-minute walk from the port to the Old Town takes you through a factory/warehouse area now being turned into a SoHo-style district, and a few reasonably priced hotels are already up. The ExpressHotel (Sadama 1, tel. 667-8700, fax 667-8800, hotel@expresshotel.ee) is clean and somewhat like an American motel, with basic but spiffy $49 doubles, good service, even free Internet access. Many rooms have fine views of the Old Town walls, just a short stroll away. Nearby, the Rotermanni Viiking (Mere pst. 6a, tel. 660-1934, fax 613-7901, viiking@anet.ee) is a smaller, also newish property with doubles running $32 to $43, with breakfast. Next door is the newer Rotermanni Hotel (613-7900, fax 613-7999, hotell@rotermanni.ee), even fresher but a bit pricier, its units starting at $61.

Along with several luxury hotels within the old city itself, there are quite a few bargains such as Old House Bed & Breakfast, on the left side of the street, not far in from the main entrance to the Old Town (Uus 22, tel. 641-1464, oldhousebedb@hot.ee). With shared showers, it's fairly basic but quite clean and has a nice common room with TV and fireplace; rates run $18-$21 a person. Just down the street is "Hostel" (Uus 26, tel. 641-1281), which, for $25 per double and $10 per person in dorm rooms, offers spacious but sparsely furnished digs; breakfast isn't included, but there are plenty of dining spots up the street by the Raekoja plats. Up on high, in a quiet area at the top of the Old Town near the government buildings, the friendly Olematu Ruutel (Kiriku poik 4a, tel. 631-3827, fax 631-3826) has great views and several nicely furnished rooms from $40 with a private bath and $33 with a shared bath.

Near the Old Town in the lovely old neighborhood of Kadriorg (reachable via tram 1 or a $3 cab ride) is possibly the prettiest place to stay in all of Tallinn, the Poska Villa guesthouse (Poska 15, tel. 601-3601, fax 601-3754, ehf@infonet.ee). Renting eight beautiful rooms from $37 to 48 including breakfast, it boasts a large, well-kept garden and a short walk to Peter the Great's Kadriorg Park, now the site of the president's home and the newly renovated art museum.

If you're willing to venture a bit further afield, the Pirita (Regati pst. 1, tel. 639-8600, fax 639-8821, pirita@firm.ee) is located in the lovely waterfront area of the same name, two miles east from the harbor along a beautiful seaside road and path. Built for the 1980 Olympics (which America boycotted), it offers excellent sporting and relaxation facilities, a fine sandy beach, and a tall pine forest. Some of the 270 rooms have been renovated; they start at $50. Take buses 1, 1A, 8, 34, or 38 from downtown (advance-purchase tickets 66¢, $1 on the bus); it's a 15-minute ride.