By Luke Baker
BRUSSELS, Feb 13 (Reuters) - If there's one issue playing on the minds of EU leaders - perhaps even more than galvanizing their economies and tackling unemployment - it is May's elections to the European Parliament.
Since the first direct vote was held in 1979, the five-yearly exercise has been regarded as a minor affair, with turnout falling at every turn, dropping to barely 40 percent at the last ballot in 2009.
But after four years of economic crisis, with resentment towards the EU growing, this year's polls on May 22-25 promise to be a pivotal moment, one that could define how Europe is run for a decade to come.
With far-right, anti-EU movements doing well or leading in France, Britain and the Netherlands, and the far-left Five Star Movement strong in Italy, the received wisdom has been that protest parties will surge at the polls, producing the most eurosceptic and disruptive parliament in at least 40 years.
But discussions with European leaders, finance officials, political analysts and anti-EU campaigners taking part in a Reuters Euro Zone Summit painted a more nuanced picture, one that suggests populists will indeed gain substantially, but are unlikely to be as coordinated or effective as they hope.
"Everyone's getting hysterical over this and they're missing the point," said Nigel Farage, leader of Britain's UKIP, an anti-EU party poised to challenge for first or second place in Britain, potentially beating the ruling Conservatives.
"They think that all eurosceptics come from the same political family. But just as the federalists come from a whole lot of different families, the eurosceptics come from a whole load of different families."
Bernd Lucke, head of Germany's anti-euro AfD party, said he was ready to team up with like-minded parties to block decisions in the European Parliament but would not cooperate with xenophobic politicians. Neither will Farage.
POPULIST DIVISIONS
Some projections have suggested anti-EU or protest parties could win up to 30 percent of the seats in the 751-seat parliament, enough to form a 'blocking' minority that could hamstring the passage of legislation.
But political analysts who have looked at past elections and voting trends suggest 20-25 percent of seats is more realistic at best. Even Farage thinks a third is optimistic.
"I don't think it's going to happen," he said. "And even if it did, this lot would just change the rules," he added dismissively, referring to Europe's institutional leaders.
More important than the number of seats is the ability to coordinate. To have influence in parliament, parties must form groups, with each group needing representatives from at least seven EU countries and at least 25-30 seats in total.
While the National Front in France and the anti-Islam Freedom Party in The Netherlands have agreed to form an alliance, and may get support from parties in Austria, Sweden, Italy and Belgium, they do not yet have enough to form a group. Farage has ruled out working with them.
"The populists are divided," said Finnish Prime Minister Jyrki Katainen. "It's hard to see that they would form one populist movement within the European Parliament."
CENTRE MUST HOLD
For Jose Manuel Barroso, President of the European Commission and a former prime minister of Portugal, the critical issue is for the mainstream groups in Europe to come together and act in a more united way.
At a time of economic hardship, hardline views on the right and left have clearly gained. Meanwhile, the message from the centre has often been weak or unclear.
"They have to leave their comfort zone," Barroso said of the mainstream centre-right, centre-left, Liberal and Green blocs that represent 80 percent of the current parliament and will almost certainly hold 70 percent of seats in the next.
"I hope the lesson the mainstream parties draw from this is not to try to incorporate some of the arguments of the extremes," he said. "They have to make the case for Europe."
Even if there is a substantial increase in protest groups after May's election, he does not expect the legislative agenda - which includes finalising a trade deal with the United States and completing banking reform - to be knocked off course.
"A very clear majority will be from the pro-European parties, so I don't expect major difficulties in terms of passing legislation," he said.
CONTRADICTIONS
Despite that confidence, the mainstream parties in Europe face severe challenges.
Europe's economic crisis has exposed the deep disconnect between voters and the institutions trying to resolve the continent's problems. Even if mainstream parties retain power, that 'democratic deficit' will still exist.
For France's Benoit Coeure, an executive director of the European Central Bank, that deficit is as worrying as the budget deficits at the heart of the crisis.
"We see elements of a negative spiral whereby European citizens don't trust European institutions ... while at the same time it is necessary to strengthen them to provide a solution to the crisis," he said..
"We have to turn that negative spiral into a positive spiral."
As an example, he cited a complex agreement designed to ensure banks are primarily responsible for resolving their problems, rather than taxpayers yet the message has not got through that EU rules and institutions are working to protect ordinary people.
"The burden of proof is not on the side of citizens, it is on the side of European institutions," said Coeure.
Come May, however, the power resides with voters. If they decide to buck the trend of the past 35 years and turn out to vote in large numbers than in the past, that would be the first indication that these elections matter.
Then the question will be whether they have as much trust as before in the mainstream parties or favour radical solutions.
"Could the next European Parliament be a much more lively and exciting place?" asks Farage. "Yes, I think it really could. I really do." (Additional reporting by Mike Peacock, Paul Taylor, Paul Carrel and Richard Mably)
