How do you describe, in English, a set of different ethnic groups in one word?
It's really, really difficult, sometimes impossible, to use English without words that have a Latin origin. And really, peoples with its possessive peoples', is the first word a native English speaker would use. If a word came via Norman French, as "people" did, it's indubitably part of the English language.
In order to complete your example sentence, you use the possessive of "peoples":
And the free peoples' federation lives on....
You could also use nations (such as in the Canadian term "First Nations") but that has an implication of political sovereignty and is just as derived from Latin. Possible candidate words in Old English could be slydeas or one of the derivatives of þéod such as ingeþeóde, gumþéoda, werþéoda (cf. Tolkien's name Éothéod for the Rohirrim), but if you used one of these, only a few people would know what you're talking about.
You may have found it difficult to find a definition for "peoples" in an online search, because of the way search engines work. Usually, it's buried in a definition for "people", such as the one at Merriam-Webster:
People 5: (plural peoples) : a body of persons that are united by a common culture, tradition, or sense of kinship, that typically have common language, institutions, and beliefs, and that often constitute a politically organized group.
The definition at Dictionary.com has a really good example, buried in a "usage note":
The aboriginal peoples of the Western Hemisphere speak many different languages.
And of course we have no less a light than J.R.R. Tolkien, in The Two Towers, during Treebeard's perplexity over what kind of thing Merry and Pippin were:
Learn now the lore of the living creatures!
First name the four, the free peoples,
Eldest of all, the Elf-Children,
Dwarf the delver, dark are his houses,
Ent the earthborn, old as mountains,
Man the mortal, master of horses...
Tolkien clearly uses "peoples" to refer to several different but distinct groups of people.
Update: I was asked to address the concept of "peoples' X of Y." Google NGrams shows a huge ratio of "people's republic" to peoples' republic" and the first half dozen Google Books results for the latter were actually mistranscribed by Google -- they appear as "people's republic" in the actual books. My feel is that socialism is a homogenizing influence when it becomes the foundation of a state -- ideology is going to trump separate cultural identity.
You actually get quite close to the answer in your own question, where you say:
Just as in English where the proper original noun is "Folk" (and not "People", since people is a latination).
Whatever you might like to call "the proper original noun", the commonly used word in English for "ethnic group" is "People":
- the entire body of persons who constitute a community, tribe, nation, or other group by virtue of a common culture, history, religion, or the like: the people of Australia; the Jewish people.
dictionary.com
And, as that link says, the plural of people is Peoples. Anything belonging to them, or for them, would use the possessive apostrophe, making your sentence:
"And the free peoples' federation lives on...."