Disneyesque vision of perfection: Edinburgh: Elegance of its lifestyle disguises an inner core of John Arlidge reports

IF WALT DISNEY had wanted to design a city, he could not have done better than Edinburgh. The castle, palace and Georgian New Town, flanked by the Pentland Hills and Firth of Forth, make it Britain's most elegant town.

For the 1.5 million tourists who visit each year and the performers who head up the A1 in August for the world's largest arts festival, the city deserves its title of the 'Athens of the North'.

And this is Edinburgh's year. The pounds 22m Festival Theatre opened last week, following the topping out ceremony at the new pounds 30m International Conference Centre. There has also been a rare victory in the traditional battle with Glasgow - arts administrators abandoning plans to close the National Portrait Gallery and move it to a new Gallery of Scottish Art in the 'second' city.

David Nicolson, president of the chamber of commerce, said: 'For the past 40 years, Edinburgh's well-to-do have found excuses not to do things. Glasgow's rapid rise in the 1980s shook us out of our lethargy.'

But Edinburgh's elegance masks serious problems. Unemployment in the housing schemes that ring the city centre stands at almost 30 per cent, three times the Scottish average - last month, gangs of unemployed youths rioted in the Craigmillar district.

In the 1980s, Edinburgh became known as the Aids capital of Britain as heroin hit the streets and addicts began sharing needles, while in recent months, social workers have warned that crack, the highly addictive cocaine derivative, has claimed its first victims.

Eleanor McLaughlin, former Lord Provost who now represents the deprived Muirhouse area, said: 'The challenge is to channel more of the income earned through tourism and arts into areas where people struggle simply to get by.'