Re: Levels of card fraud are at their lowest since 2000.
"I was intrigued, on holiday in Spain to notice they use CHIP & PIN *and* signatures"
It's either signature + proof of ID (ID card, passport, driving licence, ...) *or* PIN, depending on the particular card / terminal combination. The receipt printed out after a PIN transaction does not have a space for the signature.
What could occasionally happen is that you meet the odd shop assistant who hasn't been told (or refuses to believe) that a signature is not necessary--in which case you either explain the news or sign the receipt anyway and keep them blissfully happy.
"Payments made without proof of signature will be covered by the merchant, not the bank"
It's a bit more complicated than that, but by "proof of signature" it should be read "proof of authorisation".
"Hence shops are extremely motivated to check ID with cards."
In general that is no longer the case if doing a PIN transaction, with some exceptions (some petrol stations in urban areas, for example). When using signatures, that used to be always the case unless you were personally known to the merchant, in order to ensure that the card was indeed yours, as anyone can forge a signature. In case of fraud, the merchant did not have to cover the transaction usually, but it was still a pain in the arse for everyone involved, hence the precautions.
"Of course it helps they have ID cards."
Any official photo document can be used.