COLOGNE, Germany (Reuters) - The European Union is presenting itself in a "super-awkward and embarrassing" light with its handling of the refugee crisis confronting the bloc, German Vice Chancellor Sigmar Gabriel said on Tuesday.

A crisis rivaling the Balkan wars of the 1990s as Europe's worst since World War Two has polarized and confounded the 28-member EU, which has no effective system to cope with the arrival of hundreds of thousands of poor and desperate people.

Speaking to reporters in Cologne, Gabriel said it was problematic that some EU countries only actively joined in the project when they had money to gain, and did not take an active part in the community during difficult times.

Some member state governments have refused to take in refugees and resisted EU proposals to agree a common plan to do more to deal with the crisis.

German Chancellor Angela Merkel said on Monday that if EU members were not able to agree to a fair distribution of refugees, the Schengen zone of passport-free travel would be called into question.

Gabriel, who leads Germany's Social Democrats, the junior partners in Merkel's ruling coalition, said that such an outcome would be a terrible blow for the EU.

"To give up open borders would be a gigantic step backwards in European history," he said in separate comments to the Westdeutsche Allgemeine Zeitung newspaper.

"With Greece, there is the risk of losing money. But now Europe is at risk of losing its decency."

(Reporting by Matthias Inverardi; Writing by Paul Carrel; Editing by Mark Heinrich)