Kotor of many colours

The Bay of Kotor is a stunning lagoon and natural harbour on the Montenegrin coast. Stark mountains plunge straight into the blue water of this dramatic Adriatic fjord around which picturesque stone fishing villages cling to the shore. At the end of the inner lagoon, accessible only by the narrowest of channels, lies the old city of Kotor.

An occasionally Venetian trading port, the slight, stone-built city is encompassed by white stone walls that zigzag up the cliffs overlooking it. Venetian and Byzantine influences vie with each other in the labyrinthine streets dotted with little squares and Orthodox and Catholic churches.

The main square just inside the city gates is teeming with bars and restaurants with sprinkler-cooled umbrellas. There is a fantastic view to be had by walking the walls as they snake up the cliffs - but in 40-degree heat, I stuck to the cooled brollies.

I stayed in the Hotel Catarro in the main square, which is charming and partly built into the city wall with a curious 18th-century nautical theme and a suit of armour in the hall. The staff were very friendly and mostly spoke English. Outside the walls of this maquette Dubrovnik, the new town stretches away on both sides and there is a glossy marina where the Venetian trading galleys used to moor.

You can eat well anywhere here, from a late-night plate of seafood spaghetti at the bar to the Catovica Mlini restaurant half an hour away at Morinj. This is the most famous eatery around, and is set on a flat meadow by the sea with a spring bubbling by it and a cooling river running below the breezy outside dining room. You can't go wrong with grilled fish accompanied by a glass or two of Posip, one of Croatia's best-known white wines.

And if you're nice the waitress will explain at considerable length which bits of the fish's head (a Montegrin delicacy) are best to eat. Apparently the eyes have it  Drive in either direction along the coastal road, rapidly becoming a ribbon development of "aparmanis" (holiday lets), to find a beach (generally quite crowded as there aren't many of them) or just jump in off an old stone waterfront - as I did after lunch at the small baroque village of Perast, staring out at two churches built on islands so minuscule that they seem to float on the waves.

This coast is where la toute Belgrade used to come for their hols in the old days of Rump Yugoslavia (Serbia and Montenegro), when this was the only bit of seaside they had left.

Tourist and development money has been pouring down the Dalmatian coast from Croatia for a few years now. Old stone houses snapped up by sharp-eyed Brits for tens of thousands of pounds are now worth millions. Montenegro isn't as cheap as you might expect and it uses the euro.

My hotel cost 150 per night, however you can rent an apartment for 456 a week peak season. Amanresorts opened a glamorous 700 a night outpost last month on Sveti Stefan - an island of 15th-century cobble-stoned streets set beside crescent-shaped beaches, once a playground for Hollywood's elite, including Elizabeth Taylor and Richard Burton in the Sixties.

Around the corner from Kotor, above the old Yugoslav Navy's submarine pens, hovers a strikingly beautiful, palm fringed, jet and turquoise lido cantilevered over the sea. Beyond it floats a new fleet, testament to something very different from state socialism. This fleet is gleaming white and echoes not to admiral's salutes and the slapping of boots to attention on armour-plated decks, but the padding of cocktail-bearing Lascars, and the thrum of money gushing through the electric ether.