WILLIAMS: Hugging the Croatian coast, this small city once ran one of the richest republics in all of Europe. Its territory didnt reach much beyond these islands, but as a flourishing medieval trading power, Dubrovnik used diplomacy and money rather than arms, to remain independent of mighty empires.
Its known as the pearl of the Adriatic and when youre here, you can see why. One of Europes last remaining completely walled cities, Dubrovnik has endured earthquakes, empires and more recently direct attack with heavy weapons.
WILLIAMS: Today though, those same walls echo to the sound of cultural survival.
In the audience Dubrovniks mayor, Dubravka Suica recalls the citys gift to its people.
MAYOR SUICA: We were blocked for more than a year.
We were shot from the air, from the sea, from everywhere.
We were living in cellars and there is only one good thing, old Dubrovnik fortresses and the city walls were used as shelters and they saved us.
WILLIAMS: For the Mayor tonight is a brief respite from her new battle, how to save the ancient city from modern development.
MAYOR SUICA: We have to save money to preserve monuments, to keep them in good shape, to keep them in good condition, to keep them preserved. At the same time there are challenges, as I told you, with modern technologies. There is only one answer compromising.
WILLIAMS: The Mayors compromise though has its critics. Dubrovniks walls give it an unusual perspective from above, a so-called fifth façade.
Architect and historian Goran Vukovic fears this unique view is being slowly spoiled by modern additions.
GORAN VUKOVIC: Its important to understand that a single change like this concrete terrace on the top, satellite dishes and air conditioning systems could be the beginning of a dangerous process.
WILLIAMS: If the roofs worry Goran, its a plan for these ruins that anger him. This is one of the oldest parts of Dubrovnik possibly stretching back to seventh century settlement.
GORAN VUKOVIC: Archaeologists and art historians discovered a whole street and a few medieval houses and on the western side there is the ground floor of a renaissance 16th century palace.
WILLIAMS: Goran believes this should be kept an open space of international archaeological importance but the Mayor has other plans -- low cost social housing for young families or in other words, flats.
MAYOR SUICA: We want young people. We want kids in the town. We want schools here. We want kindergartens here and this is our strategy. This is the reason why we wanted and we are trying to build apartments in this part of town.
WILLIAMS: Why are you putting an apartment block though in the middle of an archeologically important part of the city?
MAYOR SUICA: No, archaeological site will be preserved. Dont worry about that.
WILLIAMS: But Goran does worry about that with property prices skyrocketing, he smells speculation.
GORAN VUKOVIC: I see all of this as a kind of easy way to gain money. Im quite sure, like many people in Dubrovnik, that that kind of social housing will be very soon something else. It will be used as tourist apartments.
WILLIAMS: Tourism is Dubrovniks only industry and the money is needed, but its a double-edged sword. In summer the city can easily be overrun
and without adequate controls, the visitors can be downright destructive to pieces like this 16th century masterpiece. As museum director Vedrana Gjukicbender explains, the art is in danger of being loved to death.
VEDRANA GJUKICBENDER: Sometimes they want to touch something and also the humidity from the breath. The paintings decay with that. You cant see that but you can feel it.
WILLIAMS: So does it actually damage the painting over a period? It could be lost?
VEDRANA GJUKICBENDER: Yes, yes.
WILLIAMS: Arrivals are growing fifty per cent each year and on the back of this type of tourism, come rich people who want to stay.
They in turn attract people like international property lawyer John Howell, who has the tough job of travelling to places like Dubrovnik, in his clients interests, of course.
JOHN HOWELL: Well ,we view Dubrovnik as being one of the
absolute jewels in the international property market. I mean this is a world heritage city.
WILLIAMS: You can pick up bargains but this is already a luxury destination. Good apartments can cost eight thousand Australian dollars a square metre and interest is growing.
JOHN HOWELL: It is expansive by comparison to other emerging market countries, but when you compare Dubrovnik to places like Nice and places like Venice which are the natural places it ought to be compared with, then its very, very cheap and so I would say that were looking at three hundred, four hundred per cent increases in prices in this area over the next, lets say decade.
WILLIAMS: With such potential, Dubrovnik has attracted agents like Englishman, Paul Keppler. Hes selling this place for a mere 3.5 million dollars. With this view over history hell probably get it but could development destroy this coast like it has so many?
PAUL KEPPLER: In terms of over-development Id say absolutely not. Its being protected the same as the old city. The Dubrovnik peninsula as a whole, including the old city and the new town, there is very little land available to construct new buildings.
WILLIAMS: Yet despite its beauty and history, its clear Dubrovnik is not being protected.
WILLIAMS: Apart from the developers, the citys main threat is from neglect. After a child was almost killed, the main cathedral is surrounded by scaffolding to stop falling stonework. The Rectors Palace, built in the 15th century as the seat of power, is the citys most important monument. Now a museum, its director Vedrana Gjukicbender, doesnt have the funds to save it.
VEDRANA GJUKICBENDER: The main problem is the building, the condition of the building. Through the history there are a lot of damage on the palace.
WILLIAMS: This was once the main chapel. Water has destroyed renaissance murals.
VEDRANA GJUKICBENDER: If we get some money, then we can have someone come and look at it.
WILLIAMS: After an earthquake in the seventies, reinforced concrete was poured into the palaces upper floor. Now the building is buckling under the weight and pillars are cracking.
VEDRANA GJUKICBENDER: And in that regard they say there is pressure on and degradation of the foundations -- and the external supporting walls are bowing outwards.
WILLIAMS: The palace needs money but the city funds are thinly stretched, the cupboard bare.
On the streets, one of Dubrovniks charms is the fact that its still a real living city, unchanged in some ways for centuries, but for those who live here, the new attention carries risks.
JOHN HOWELL: I think the danger is that they lose sight of their objectives and that they allow the big developers to come in.
The last thing you want is somewhere which is actually full of apartments which are used for three, four weeks a year and which are then absolutely dead the rest of the time.
WILLIAMS: Just outside the city are some assets foreign buyers rarely see.
Sixteenth century summer palaces owned by the state and falling apart. Historian Goran Vukovic took me to one of these renaissance gems to show me the sad state of repair.
GORAN VUKOVIC: In the suburbs of Dubrovnik there is more than ninety summer palaces like this. I think more than 95% are in the same or worse condition.
WILLIAMS: This is not war damage. Its simply neglect. Theres no security, so renaissance tiles, balustrades and columns are being stripped ,but the Mayor has a novel plan.
MAYOR SUICA: I also use this opportunity to offer
these houses to foreign investors or whoever has money to invest and to use these houses as summer residences but they should be open for public.
WILLIAMS: Goran Vukovic says thats a cop out and the citys budget is mismanaged. He says UNESCO could help drum up funds to preserve buildings like these, but its worried about corrupt local officials.
GORAN VUKOVIC: They mention to me the lack of confidence in the local authorities and lack of confidence in local experts.
WILLIAMS: Lack of confidence in the authorities meaning what?
GORAN VUKOVIC: It means that they are afraid that a lot of money will find a way into private pockets.
WILLIAMS: But for Goran the care and repair of these buildings is too urgent to be left in the UNESCO too hard basket. To the untrained eye, Dubrovnik may look indestructible but it needs constant care urgently to remain one of the treasures of the Mediterranean.
Reporter: Evan Williams
Camera: Richard Malone
Editors: Mark Douglas, Bryan Milliss