* No vote would signal retreat into economic isolation
* Rejection would lead to continued scarcity of funding
* Lisbon debate now focused on economy
(Adds more detail)
By Padraic Halpin
DUBLIN, Sept 11 (Reuters) - A second Irish rejection of the EU's Lisbon Treaty would shatter international confidence in Ireland's ability to deal with its economic woes and would raise the country's borrowing costs, the Finance Minister warned on Friday.
Irish voters, representing less than 1 percent of the EU's near half a billion population, will decide the fate of the bloc's global ambitions on Oct. 2 when they vote, for a second time, on a charter designed to give the EU a greater voice in world affairs.
"A no vote will signal to the rest of the world that Ireland has retreated into economic isolation," Brian Lenihan told a news conference in Dublin.
"The consequence would be a continued scarcity of funding for our banks and a continuing rise in the costs of borrowing leading to less money for vital state services."
Opinion polls suggest Irish voters will approve the Lisbon Treaty, intended to ease decision-making in the 27-member bloc, but they also show that support for the charter has fallen amid widespread anger at Dublin's handling of a severe recession.
The government is hoping to use the sorry state of the Irish economy to further the Yes case; arguing that Ireland needs to be at the heart of Europe at a time of economic crisis.
After a fired-up opposition succeeded with emotive arguments about abortion, neutrality and taxation last time out, Lenihan said concessions Dublin has secured from Brussels, including the retention of an Irish EU commissioner, have changed the debate.
"We saw a set of posters last year, those posters aren't there this year. We now have a different set of posters so the core of the debate comes down to the economic and social benefits of full and qualified European participation," he said
Lenihan added that without the support of the European Central Bank, the Irish financial system would have collapsed in the aftermath of the Lehman Brothers' bankruptcy.
"If anyone has any doubt about that all they have to do is look at Iceland, which is now very keen to become a member of the European Union," he said.
But the economic argument could also work against the government because it focuses voter attention on its failure to prevent Ireland's transformation from "Celtic Tiger" economy to the euro zone's weakest link.
A second No vote would plunge the EU into crisis and could trigger the fall of the Irish government, putting a question mark over the country's ability to deal with twin banking and fiscal crises.
(Editing by Carmel Crimmins/ Ron Askew/Victoria Main)